XLP:XLY Consumer Staples to Consumer Discretionary Ratio Weekly Chart with 85 MA Cross

An important Keystone economic, cyclical and retail sector signal is the XLP:XLY ratio with 85-week MA cross. The consumer staples stocks (XLP) are PG, CLX, CL and others that provide the products we cannot live without such as toothpaste, toilet paper, soap and personal hygiene products. The consumer discretionary stocks (XLY) are TIF, JWN, KATE, KORS and others providing the fancy bling and luxury goods, fancy handbags, expensive dresses, top-shelf leather accessories and 'diamonds that are always a girl's best friend'.

Obviously, when economic times are great, the luxury goods are flying off the shelves and XLY catapults higher. This is the case in recent years as the Fed, BOJ and other central bankers continue to goose the stock market creating vast wealth for the rich that own stocks. The XLP consumer staples sector receives a boost over the last couple weeks as traders and investors seek perceived safety and protection from an economic downturn and lower stock market. However, since the Fed has pumped all asset classes obscenely higher with all the easy money, prices are distorted and the XLY stocks are already at lofty levels just like the broader market.

Note how the XLP:XLY ratio gapped up in September-October 2007. What happened back then? Yep, that was the multi-year top in the stock market which led to the waterfall crash in late 2008 into early 2009. The Fed saved the day in March 2009 destroying capitalism forever since banks and car companies were bailed out and restrictions were placed on shorting banks and other stocks. Those of you still believing in free markets are delusional. Free markets are a quaint term and serves as a way to bring the sucker's into the stock market so they can be fleeced. Americans decided in early 2009 that they do not want the bad side of capitalism to occur and instead only want the good side of capitalism; a never-ending stock market upside party where everyday is rosier than the next. The Fed has delivered this nirvana for the last near six years. The chart above shows cracks forming in the Fed's grand Keynesian money-printing scheme.

The XLP:XLY ratio moving above the 85-week MA clearly signaled trouble ahead in late 2007 as folks stopped buying expensive bobbles and instead stocked the pantry with food, canned goods, soap, toothpaste and toilet paper for potential trouble ahead. The Fed engineered a stock market bottom in early 2009 stabbing and destroying capitalism forever. This created the drop in the XLP:XLY ratio under the 85-week MA and good times ahead. Folks begin raping the stock market upside and spending obscene profits on fancy clothes, fast cars and lots of shiny bling. There was a stutter-step in 2011 and 2012 but these were only minor bumps in the road. Former Fed Chair Bernanke fires the QE2 and QE 3 money bazooka's all through 2010-2012, the ECB chimes in with LTRO's, China's PBOC continues to pump markets with stimulus and most importantly, the BOJ began printing money and set out to destroy the yen currency in 2013 to present which created the bulk of the 2013 stock market rally (lower yen, higher dollar/yen currency pair, higher Japan and US stock markets).

Well, the party always ends. The green falling wedge, oversold conditions and universal positive divergence (green lines) easily identified the bottom in the ratio and the upward buoyancy continuing this year. The 5-1/2 year stock market cyclical rally is one of the top four longest stock market rallies in history--courtesy of the Fed and other central bankers. The Caligula-style stock market orgy party may be coming to an end and the gap up in the XLP:XLY ratio is yet another indicator that the Fed booze and BOJ crack cocaine supplies are running out. Most interesting is that the Fed has created new asset bubbles across nearly all asset classes, stocks, bonds, real estate, art, you name it, and those traders and investors now running into consumer staples stocks, as they have been trained to do following economic cycles, will likely have their heads handed to them since consumer staples stocks are pumped to bubble levels just like the broader market.

Trouble is ahead for the economy and markets if the XLP:XLY ratio remains above the 85-week MA. If the central bankers perform additional perverted and obscene deeds and goose the stock market further with more easy money, watch to see if the ratio drops back under the 85-week MA, or not. The end game to the central banker charade appears to be approaching. The Fed has created an elite class in America that is now insanely wealthy from the stock market gains while the middle class and  poor continue to suffer for the last six year and longer. There are now two America's, the have's and the have not's, created by the Fed policies which will likely lead to social unrest in the years forward. The Fed members do not care since they are handsomely rewarded for their loyalty to the bankers with lucrative speaking engagements and book deals after they retire at a young age. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.