XLP:XLY Consumer Staples/Consumer Discretionary Ratio and SPX S&P 500 Weekly Charts; XLP:XLY at Historic Lows

The XLP:XLY ratio is way down in the cellar so that represents a lot of consumer discretionary buying (denominator) and weak spending on consumer staples (numerator). Hey, nobody said this would involve fractions. Do not worry, the math is basic.

Consumer staples are the things you need in good times or bad and the things you hoard and make sure you have when the economy goes south and people start losing jobs left and right. A little bit like now. You buy toilet paper, and detergent, and hygiene products, and paper towels and stock all that stuff from floor to ceiling in the laundry room. Then you buy food rations and canned goods to stock the pantry to where cans fall when you open the door. In the evening, you open a can of baked beans that you heat over a Bunsen Burner and the family sits around candles talking about past recessions and depressions. You worry about getting ill because you must pay for healthcare in good times or bad. Staples are in demand.

Consumer discretionary is Party Town. Whoopie. Yee-haw! Time to buy motorcycles, Ski-Doo's, Rolex watches, snowboards, new cars, jewelry, fur coats, diamonds for honey and other adult middle-age-crisis toys. Do not worry about tomorrow, live for today! Expensive haircuts are new threads are required for the elaborate parties where money, and wine, flow like water. Real estate is bot at any price. Stocks go up forever. Life is one big party and it will never end. Spend that money on any piece of frivolous crap you see. Discretionary items are in demand.

For ratios, or fractions, same-o thing, when the top number (numerator) moves higher, the ratio moves higher. When the top number moves lower, the ratio moves lower. For the bottom number (denominator), when it moves higher, the ratio moves lower. When the bottom number moves lower, the ratio moves higher. Is that clear as mud? That kid in the back looks like he is dizzy. This girl's eyes just glazed over.

The top number is XLP, staples, think PG for hygiene products and diapers (no, the diapers are not for Keystone), and CL, Colgate to scrub your rotted teeth, CLX, Clorox to clean your dirty clothes, etc..., things you need even if times are bad. When people chase these items, XLP prices rise, and the ratio chart will run higher. It means the stock market is in trouble because people are getting bigtime worried. It is time to sell stocks, like now.

When times are great, like when the year started, everyone drunk as skunks, and buying any stock with a heartbeat, no one was thinking about staples, they were thinking about fancy new clothes and shoes, and a new car, so XLP stocks drift lower and the ratio moves lower. Stocks are rallying.

The bottom number is XLY, discretionary, think auto stocks like the new Tesla piece of crap truck, or hotel stocks like MAR for travelers, maybe BBY for folks splurging on electronics since times are great and the good times will never end. When people chase items like motorcycles and other high-end items, XLY prices rise. XLY is in the denominator so when XLY moves higher, the ratio drops. These are good times with stocks rallying.

When XLY drops as all the fun items become less interesting and realization hits that the money should be spent on toilet paper, diapers and canned goods instead of adult toy crap, the ratio will move higher. This represents people becoming worried knowing that the splurging and decadence, in this New Gilded Age not golden age, has run its course and a recession is likely on the come, like now.

The purple line shows that stocks are still headed higher partying on but note that the ratio stopped going down and did not go down as far as three years ago. People know they have splurged too much and are starting to feel that something wicked this way comes and it would be prudent to begin preparing for Hard Times. The DOGE stuff by the Donnie and Elonnie Show drives fear into all workers across the United States that any job, no matter what you do, is expendable and may be gone tomorrow. Are you worried? Donnie and Elonnie were questioning an engineer today asking him what he does for the government.

The XLP:XLY ratio is at 0.38 heading higher. As it heads higher, it means selling is already underway in the stock market, like now. When price crosses above the 85-wk MA at 0.40 all hell should break loose with stocks falling like rocks. The bottom in stocks will occur after the ratio pops above the 85-wk MA and peaks, like the other fractals in the red circles display.

What are you doing? Are you buying something fancy, maybe an expensive kitchen gadget you do not need that will be out on the curb a year from now (XLY)? Or are you cleaning out your pantry shelves and closets to prepare for the stockpiling of paper towels, toilet paper, hygiene products, canned goods, water and other staples becasue you are getting concerned about the future (XLP)? There goes neighbor Harriet. She just sold all her stocks and now she is driving to Costco yelling out the window that she needs to stock-up on stuff. 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.