Restricted Upside Till This Chart Adjustments | The Conscious Investor

I used to be reviewing my weekly ChartList studies this afternoon and observed this one, exhibiting the highest performing sectors for the week.

Solely three of the 11 S&P 500 sectors have been up on the week: Client Staples, Utilities and Well being Care. Not precisely an offensive powerhouse on the highest of the chief checklist, proper?

However seeing Client Staples within the high spot led me to evaluate my favourite chart to trace: Offense vs. Protection for the fairness markets.

This chart exhibits the relative efficiency of offense (Client Discretionary) vs. protection (Client Staples) within the shopper area. Principally, that is evaluating “issues folks need” vs. “issues folks want” and generally is a nice indication of general danger urge for food for equities.

The highest panel is utilizing the cap-weighted ETFs (XLY and XLP) whereas the underside ratio contains the equal-weighted variations (RCD and RHS). I want the equal-weighted ratio, because the XLY is closely skewed to simply three shares — AMZN, TSLA and HD — and I might a lot relatively get a broader sense of rotation in these sectors.

After each of those ratios made a brand new low within the 2nd quarter, they moved greater because the S&P 500 rallied in July and August. Discover how the cap-weighted model broke to a brand new swing excessive in August, whereas the equal-weighted model didn’t? This was an excellent bearish inform for my part, signifying that there wasn’t sufficient growth into Client Discretionary.

Extra lately, the cap-weighted model has been struggling, as mega-cap shares AMZN and TSLA have been in a confirmed downtrend. Right here, we see AMZN dropping as soon as once more retesting the latest breakdown beneath $100.

And right here is TSLA, making a brand new 52-week low once more this week.

Versus the cap-weighted model, the equal-weighted model of the offense-defense ratio lately examined its June excessive. In final weekend’s report back to my Market Misbehavior premium members, we famous that if this ratio have been to interrupt to a brand new swing excessive, that would point out a broader advance for the S&P 500. As an alternative, this week noticed the S&P 500 basically tread water at -0.6%, whereas the equal-weighted offense vs. protection ratio pulled again from its earlier resistance stage.

Because the S&P 500 exams its 200-day shifting common, just like what we noticed again in August, I am monitoring value and breadth measures to see if we construct sufficient constructive momentum to propel via the 200-day shifting common, and maybe attain to the August peak and even greater. However till Client Discretionary begins to outperform Client Staples as soon as once more, I am skeptical of the upside prospects for the key fairness averages.

So what’s subsequent for the S&P 500? I see 4 potential future paths for this index, from the very bullish (SPX 4800) to the very bearish (SPX 3200). Which situation do you see as most probably, and why? Take a look at the video and let me know within the feedback!

RR#6,

Dave

P.S. Able to improve your funding course of? Take a look at my YouTube channel!

David Keller, CMT

Chief Market Strategist

StockCharts.com

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your personal private and monetary scenario, or with out consulting a monetary skilled.

The creator doesn’t have a place in talked about securities on the time of publication.   Any opinions expressed herein are solely these of the creator, and don’t in any method signify the views or opinions of some other particular person or entity.