Future Retirement Success
  • Politics
  • Business
  • Investing
  • Stocks
  • Politics
  • Business
  • Investing
  • Stocks

Future Retirement Success

Stocks

Another Risk OFF Signal

by November 8, 2022
November 8, 2022
Another Risk OFF Signal

Discretionary vs Staples Rotation

While preparing for my show Sector Spotlight this week and trying to put things together in a meaningful fashion, I also remembered to look at the XLY:XLP ratio.

When you look at the positioning of the various sectors that are likely to outperform during the various stages of the economic cycle, you can see that Consumer Discretionary is positioned at the start of a bull market cycle in stocks while Consumer Staples is positioned on the opposite side just after a peak in stocks and the start of a bear market cycle.

Looking at the ratio of these two sectors can therefore help us to determine whether the market is more likely to be in a risk ON or risk OFF mode.

The Relative Rotation Graph at the top of this article shows the rotations for both XLY and XLP over the last 30 weeks. The generally opposite rotations are very well visible. The most interesting observation is that XLP remained at the right-hand side of the graph, rotating from leading into weakening and then back into leading. XLY managed to get into the leading quadrant from improving but almost immediately started to lose relative momentum and roll over, moving back into the lagging quadrant.

XLY:XLP Breaking Below Major Support

Last week, both tails crossed over on the RS-Ratio scale, signaling the continuation of the trend that already is in play since the start of the year.

A 1-1 comparison of XLY vs. XLP shows that the recent weakness actually also managed to break the major rising support line to be broken downward, ending the uptrend that was in play since the start of 2009.

The ratio is currently running into a support zone between 1.8-1,9, coming from peaks formed in 2004, 2014, and 2016. But even when the market manages to hold these levels, it seems very unlikely we will see a swift turnaround back in favor of Consumer Discretionary stocks.

Impact On S&P 500 Index (SPY)

For the time being, the S&P 500 is holding up above support near 360. However, the series of lower highs and lower lows, and thus the downtrend, is still very much in place. Within this framework, SPY could reach as high as the double resistance, which comes in at around 410, where the previous high level intersects with the falling resistance line.

It is tempting to jump on a train close to support levels, but it can hurt when the next higher time frame is ignored. The problem in the current situation is that the “ease of movement” is to the downside. It takes very little for the market to drop rapidly, while it can only crawl up at a very slow pace.

Given the position of the market as suggested by the sector rotation model and the risk-off signals by some important big-picture macroeconomic indicators and ratios, I still prefer to remain very cautious with allocations to stocks in general.

#StaySafe, –Julius

0
FacebookTwitterGoogle +Pinterest
previous post
Opportunities for Growth in the UK’s Cybersecurity Market
next post
Kristina Karamo: Michigan Republican Voters Told They Have Already Voted in Detroit

You may also like

Fibonacci Says Upside to SPX 4300

May 20, 2023

Grain Prices Suggest Inflation Far From Peaking

August 23, 2022

The Best Five Sectors, #20

May 27, 2025

Why Cisco’s Stock Reversal Could Be a Game-Changer

December 12, 2024

One Potentially Big Problem Is Lurking For The...

May 19, 2024

Nasdaq Month-End Analysis

July 29, 2022

What are the Equity Market’s Positive Signs?

January 31, 2023

Earnings Season in Full Swing: What You Can...

July 14, 2023

Election Aftermath: Unleashing Profitable Small Cap Stocks

November 7, 2024

Equities Look for “Energy” in “Go” Trend

November 18, 2024

    Get free access to all of the retirement secrets and income strategies from our experts! or Join The Exclusive Subscription Today And Get the Premium Articles Acess for Free

    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Rescissions: A Small but Welcome Step Toward Spending Discipline

      June 5, 2025
    • DAVID MARCUS: Why Navy ships should not be named for gay rights icons

      June 5, 2025
    • GREGG JARRETT: Biden, the ‘marionette president; and the case of the runaway autopen

      June 5, 2025
    • Trump Practically Bans Travel and Immigration from 12 Countries with Flimsy Security Justifications

      June 5, 2025
    • ‘He’s not a big factor’: Trump’s Senate allies dismiss Elon Musk’s calls to ‘kill the bill’

      June 5, 2025
    • Fears grow that Tata Steel could be excluded from Starmer-Trump trade deal

      June 5, 2025

    Categories

    • Business (8,147)
    • Investing (2,008)
    • Politics (15,523)
    • Stocks (3,127)
    • About us
    • Privacy Policy
    • Terms & Conditions

    Disclaimer: futureretirementsuccess.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2025 futureretirementsuccess.com | All Rights Reserved