The relative ratio of the S&P 500 Index versus the S&P 500 Consumer Staples sector has reached a fresh 52-week low.
Here’s the chart:
Let's break down what the chart shows:
The black line in the top panel shows the relative ratio of S&P 500 Index versus the S&P 500 Consumer Staples.
The redline is the 200-day moving average of the relative ratio.
The blue line is the 50-day moving average of the relative ratio.
The Takeaway: In healthy bull markets, this ratio typically moves up and to the right on the chart.
Right now it's moving lower!
There’s no other way to put it—market participants are positioning themselves defensively… They are not seeking risk.
This defensive rotation has been steadily increasing since late January, and the current landscape is risk-off.
This is perfectly normal behavior in a weak market.
Let me break down what I am seeing in the chart:
- The ratio has reached a new 52-week low.
- The ratio has broken down from a key multi-year support and resistance level.
- The ratio is currently below both its 50-day and 200-day moving averages.
- The 50-day moving average has crossed below the 200-day moving average.
- The slopes of both the 50-day and 200-day moving averages are trending downwards.
- The relative ratio is in a strong bearish momentum regime.
While it is common for the consumer staples sector to rise during a bull market, if consumer staples start to significantly outperform the overall market, it indicates that the risk outweighs the opportunity.
There is nothing bullish about this ratio right now!
If we are going to see a meaningful rebound in stocks overall, we would expect the ratio to stop moving lower and retake its key multi-year support and resistance level.
Is this the most important chart in the world right now?
Grant Hawkridge | Chief Aussie Operator, All Star Charts
PS:If you missed Steve's live event last Friday, He walked through some of his best Put trades from the last few weeks, how he found them, and what kind of trades he is looking for right now.Check it out.
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