The Equal Weight Consumer Discretionary vs Equal Weight Consumer Staples relative ratio has been in an uptrend for the past 517 trading days.
Here’s the chart:
Let's break down what the chart shows:
The black line in the top panel represents Equal Weight Consumer Discretionary vs Equal Weight Consumer Staples relative ratio (If the ratio rises, discretionary stocks are outperforming staples; if it falls, staples are outperforming discretionary stocks.)
The blue line in the top panel represents the 50-day moving average, while the red line represents the 200-day moving average.
The black bars in the bottom panel indicate the consecutive days when the 50-day average is greater than the 200-day average.
The Takeaway: If you've been following me, you probably already know that I define an uptrend as when the 50-day moving average is above the 200-day moving average. I like to keep things simple and avoid complicating things.
This ratio is one of my favorite Risk-On/Risk-Off barometers, and the equal-weight consumer discretionary (Risk-On) vs equal-weight consumer staples (Risk-Off) relative ratio is experiencing its longest uptrend ever.
Since November, this ratio has been ripping higher after breaking above its previous cycle high from 2021. Currently, the 50-day average is 10.7% above its 200-day average, marking the third-highest level it has ever reached. The last time the trend was extended this much was back in April 2021, just a few months before the overall market peaked in November 2021.
So, is this trend overextended?
Only time will tell…
The way I was taught is to follow the trend until it bends, and there are currently no signs of it stopping as the trend continues to move up and to the right, reaching new all-time highs almost every week.
Grant Hawkridge | Chief Aussie Operator, All Star Charts
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