One Of My Favorite Ratios Is Scorching Hot ??

For a long time, and certainly throughout 2022, consumer discretionary (XLY) was under tremendous selling pressure as both Amazon.com (AMZN) and Tesla (TSLA), the top two component stocks in the ETF, fell precipitously.

However, both stocks have now stabilized, despite the weak response to AMZN's quarterly report on Friday, and we're now seeing this key consumer ETF outpacing the more defensive consumer area - staples (XLP):

Enter Enter XLY:XLP:

During a secular bull market, I would expect an offense vs. defense ratio like the XLY:XLP to print higher highs and higher lows. In 2022, we saw the ultimate low undercut the prior key low in March 2020. It was the second time that's happened. Back in 2016, the XLY:XLP ratio fell beneath the 2015 low temporarily, before rebounding and breaking to new relative highs. As I look at 2023 and beyond, this ratio will provide a MAJOR clue. There is no reason for us to see this ratio break to a new low. If it does, it'll likely be sending us a very bearish signal about the U.S. stock market. Instead, I'll be looking for this ratio to continue trending higher throughout 2023. If it does, those in the bearish camp will likely be disappointed in their 2023 performance.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.