XLP:XLY Consumer Staples to Consumer Discretionary Ratio Weekly Chart

The XLP:XLY ratio is the consumer staples to the consumer discretionary stocks. The staples are toilet paper, soap, detergent, toothpaste, household goods and food and beverage. Generally, in tough times, this is the stuff you need to get by each day. The discretionary items are the fun things like sports cars, mink coats, expensive jewelry in blue boxes, a surround-sound entertainment system and a washing machine that also cooks breakfast, although the eggs are runny. You get the picture. XLY are the non-essential type things and frivolous things you buy when the job is going great and money is burning a hole in your pocket.

So XLP sounds like the 'oh woe is me' stocks while XLY sounds like 'party time stocks'. That means that in recessions everyone is likely favoring XLP and shunning XLY while in good times, when the Fed wine is flowing like water enriching the wealthy class, everyone is favoring XLY and laughing and scoffing at the foolish and downtrodden XLP.

At the dotcom bubble top in 1999-2000, the ratio was low so people were living high off the hog, driving around in brand new cars, buying brand new computers every other year, life was good. Then the dotcom bubble popped and the tears flowed like water. The recession was tough and folks swore off the fancy cars and diamond rings. They would never want such bobbles again if they survived the recession. Now they stocked up on canned food, and toilet paper, and made sure the house was in fine working order.

Former Fed Chairman Greenspan, the ole lizard king himself, cut rates which created the housing bubble in the early and mid 2000's. Folks tired of the simple life and as the economy took off with easy money and low rates, everyone started partying again. These were the years of fancy houses; the housing bubble. Everybody wants a McMansion. And they bot them. Harriet, that made minimum wage at the local diner, lived like a queen in a $300K McMansion; for 3 months. People were given loans that had no business buying a house let alone an expensive one. The housing bubble popped since the party got too out of hand and the housing market collapsed. Again, everyone said they learned from their evil ways and will never buy another big house again and they do not need or want a fancy car. It was worrisome times in early 2009.

The Federal Reserve stepped in to save the stock market from crashing in March 2009. The Fed always protects the wealthy class that own the US stock market. Once the money-printing started in force, everyone knew a big party was guaranteed. The ratio stays below the 100-week MA from 2009, after QE1 began, into 2015. The wine is flowing like water again and people said heck with franks and beans, give me steak, and I want a Mercedes convertible.

May 2015 is what Keystone calls the last legitimate top in the stock market. Everything above is fantasyland. The Fed and other central bankers have intervened in markets for 12 years and no one actually knows what any asset is worth anymore. And this includes stocks, bonds, art, antique cars, real estate, vineyards, collectibles, diamonds, etc... The next couple years will be fun.

The XLP:XLY ratio hit that lower red bar again and a selloff in the stock market occurs in 2015 but again, the Fed saves the day with money-printing. That was the famous Tweezer Bottom in early 2016 with the SPX. It is shameful how the Fed rewards the wealthy at the expense of the rest of society. The XLP:XLY ratio is completely off the rails now. The wealthy rip off their clothes and begin an orgy so obscene that Caligula would blush.

Americans throw caution to the wind in 2016 and party time begins again. They buy expensive new wardrobes on a whim. A new computer? No problemmo. How about more smartphones, iPods, iPads, and those watches, don't forget all that crap too. Baby wanted another diamond bracelet so what can you do. Baby gets what baby wants if you want kisses. Add a mink coat on top of that as well. Folks are having the times of their lives buying sports cars, decked-out SUV's, hey, I'm a bigshot, I drive around in an black Escalade. Your got nothing little man, I drive a Land Rover. Well, I got a Humvee, although I have to drive from gas station to gas station. All of these jackasses will be driving Chevy Vega's in a couple weeks.

You get the idea. The market and economic joy is off the charts right now. Euphoric complacency. Moral hazard has arrived. The Fed will always save the stock market and make it go higher so no one ever has to worry about a selloff again. Everyone has a new car, bot a new house, or own a beautiful remodeled house, fancy clothes, fancy gadgets and the best jewelry, and the movie theater system installed in the empty bedroom of the double-wide past the laundry room with the louvered doors.

What can possibly go wrong? The XLP:XLY will eventually work its way back up to the green bar. Once it hits the red bar moving higher, you will be eating franks and beans each night and taking the mink coat down to the pawn shop to hawk it and raise some dough. 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.

Note Added Sunday, 2/21/21: 0.3829.