Bill Doane ran the Fidelity Technical Research team back in the 1970’s, and he once shared with me his favorite way to measure sentiment for equities.
He looked at two indexes which are long since retired that tracked the relative performance of “offense” vs. “defense” in the consumer space.
A modern version of Bill’s approach can be analyzed by comparing the performance of Consumer Discretionary (things you want) vs. Consumer Staples (things you need). When conditions are good, consumers tend to splurge on discretionary purchases like new clothes, exotic travel, new cars, and other things that are more “nice to haves” rather than “need to haves”.
When conditions are bad, consumers tend to splurge less and save more, but they always need certain products like alcohol, tobacco, and household products. By analyzing the relative performance of Consumer Discretionary vs. Consumer Staples, we can see how consumers are behaving as implied by the performance of these two important sectors!
In today’s video, we’ll look at the relative performance of the XLY to XLP as well as the equal-weighted versions of these sector ETFs, using the best practices of technical analysis.
- How have these two sectors performed so far in 2023, and what are the prospects going into the summer months?
- What’s the benefit of using market cap-weighted vs. equal-weighted sector ETFs to understand the dynamics of this ratio?
What does an improvement in these ratios tell us about conditions for the S&P 500 index?
VIDEO: Offensive vs Defensive Stocks Showing Bullish Pattern
VIDEO LINK (to YouTube) here as well.
Charts to reference:
Twitter: @DKellerCMT
The author may have positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
