XLY is consumer discretionary sector = investor shift to luxury but not necessary things = risk appetite increase
XLP is consumer staples sector = investor shift to more basic needs = risk appetite decrease (more security)
As a recent spat of rally, i have noticed that there is a sector rotation play into XLP . As a result, the ratio XLY/XLP is getting slightly smaller.
As observed from the previous two market top in 2008 and 2011, when the XLY/XLP major low (blue) was taken out on the downside, SPX (a representative of DJIA , DJTA, RUT & COMP) had either a major crash or correction.
XLY/XLP made another low back in Mid Oct 2014. Could the same scenario happen to SPX again if the red line crosses below the Mid Oct 2014 low?
P.S. Excluding 2011, when SPX kept on making higher high, XLY/XLP was making higher low. A divergence in the warning.
4 months ago, there was a peril of this ratio breaking the prior swing low, in fact twice. Oct & Dec, but somehow, price get into descending triangle and break on the UPside.
Hence, the search for clue that market has topped out is invalidated.
As can be seen at the right most, SPX is up and the ratio is UP
money flows into discretionary (Not defensive XLP), hence the RISK is still very much ON!!
i often hear people talk about FUNDAMENTAL and yet they cant see macro fundamental from the chart, which is pretty sad for me, so i reckon this overall trend does tell us about the current underlying situation which is oblivious to the street yet..
Next i also have another chart in HG1! saying that once silver/gold ratio breaks upside, Commodities inflation is in full swing
my local commodities related stocks have been on a 45degree angle up,
the next commodities superstars will be Copper, Rough Rice, Coffee which i just announced in Agriculture chat room ^_^