SML:XLP Small Caps Consumer Staples Ratio Weekly Chart 100 MA Cross

SML:XLP is a ratio chart comparing small caps to staples; risk to safety. Thus, as the wine is flowing and the equities party is in full swing, traders are in the growth and speculative stocks laughing and having a good time. Once the economy turns down, the defensive and safety stocks are preferred like staples and healthcare. Thus, this ratio chart will move up and get higher in the go-go bullish times, but fall and move lower in recessionary periods and weak economic times.

The 100 week MA is very useful to provide a line in the sand to gauge happy markets from sad markets. Note all the touches shown by the black circles adding to the 100 MA cross credibility. The go signal for risk occurred in late 2009 into early 2010, the train was leaving the station and the confetti was thrown. Note how the RSI remained long and strong at the April 2010 top but the other indicators were negatively diverged. Price was spanked down due to the divergence but the RSI wanted another higher high and got it a year later, this year, a couple months ago. Note how the 100 MA was failing last August when Chairman Bernanke then stepped in and saved equities with QE2.

The purple lines show how the higher price lined out with universal negative divergence to create the March 2011 top. The chart and indicators are now showing a preference for the broad markets to move sideways to sideways down ahead. Thus, we just bounced off the 100 MA, the market bulls are trying to keep their head above water, but, the 100 MA will probably fail as we move thru the summer. Watch the 100 MA cross as a broad market forecasting tool; a failure of the 100 week MA is a big deal. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.