Back on January 16, I provided an updated research note on the ratio of the Consumer Staples Sector (XLP) to the NYSE Composite Index.
In that update, I emphasized the importance of this indicator for the markets and provided a potential target for the ratio.
In short, consumer staples are a “defensive” sector. So when the ratio is headed lower, it’s “risk on”. BUT when the ratio reverses back higher, it’s a risk off signal.
In the charts below, you can see that the NYSE Composite hit new highs then reversed off upper trend line resistance (top chart below). At the same time, the XLP/NYSE ratio failed to make a new low (bottom chart below).
This was a sign of strength and served as an initial warning for investors. If this ratio begins to move higher, it would not bode well for stocks.
However, if the ratio turns lower again, there is another target remaining (see prior post). Good luck out there!
Author does not have a position 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.