Staples Dilemma:

Bears always seem to be under a microscope, and they should be as the market has an overall positive, bullish bias. Looking at comparisons of how certain groups have behaved against each other, it is a good way to view where one should deploy their capital. Below is the ratio chart comparing the consumer staples to the consumer discretionary space, and it paints a very bearish complexion for the former. Remember ratio charts just show how one group or stock is acting better or worse than the other. It does not mean that both are not trading well, just which one may deserve your money. One can see the bullish wedge forming in the staples favor, but any strength emanating from a break above the pattern would most likely be transitory. Over the last 6 months the XLY has been the BEST performing major S&P sector of 11, up 33.6%. During that time period the XLP rose 14.1%. What was telling to me, was the fact that over the last one month period I would have thought the more “defensive” staples would have been strongly outshining discretionary. That belief was incorrect with the XLY up 3.8%, compared to the XLP up 2%. This is why I think one can ride out this storm within discretionary.

This article requires a Chartsmarter membership. Please click here to join.