The relative ratio of the Consumer Staples versus the S&P 500 has reached a new three-month high.
Here’s the chart:
Let's break down what the chart shows:
The blue line in the top panel shows the relative ratio of S&P 500 Consumer Staples versus S&P 500 Index.
The greenandredlines in the bottom panel represent the 14-period daily Relative Strength Index (RSI) for the ratio above. When the line is green it indicates that the ratio is in a bullish regime, while when the line is red it signifies a bearish regime.
The Takeaway: When I’m looking for evidence that market participants are taking defensive positions, the ratio of Consumer Staples to the S&P 500 offers valuable insight.
And right now, I am seeing some of that defensive rotation.
The landscape for one of my favorite risk-on/risk-off ratios has changed considerably. Let me break it down!
- It has broken out of a short-term bearish-to-bullish reversal pattern and has reached three-month highs.
- The daily RSI has ripped past 70, turning this indicator into bullish regime mode.
- and, as of yesterday, the ratio closed above its 200-day moving average.
It is perfectly normal for the consumer staples sector to rise during a bull market, but when consumer staples start to outperform the overall market, that piques my interest.
I think it's important to take note of this change in leadership.
Could this be one of the most important charts in the world right now?
Grant Hawkridge | Chief Aussie Operator, All Star Charts
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