EB Daily Market Report - Special Report - Monday, March 27, 2023

I've been updating the intraday "@XLYXLP" User-Defined Index today and I wanted to share with you the results. I literally just finished it, so I didn't have time to put much else in today's report. Nonetheless, I believe this new UDI will provide us very useful signals in the days, weeks, and months ahead, so I'm happy to share it with you today.

Here's a chart of the intraday XLY:XLP (top panel), the closing XLY:XLP (middle panel), and the S&P 500 (lower panel):

The PRIMARY difference between the "intraday" XLY:XLP and the "closing" XLY:XLP is that the former ignores gaps. So when we look at that top panel, we are seeing how consumer discretionary (XLY) is performing relative to consumer staples (XLP) during the trading day. It ignores the pre-market "news" and opening manipulation. I believe these intraday relationships will prove to be much more useful in helping to call tops and bottoms in the market, but we'll be tracking them daily in order to evaluate the strength of their signals.

Note in the above chart that the intraday XLY:XLP is setting higher highs and higher lows. Also, during the most recent turbulence in the market, the intraday XLY:XLP has held up fairly well, suggesting to me that the mid-February to late-March struggles are nothing more than further Wall Street rotation to bullish growth areas, while retail traders are manipulated. It's confirming what I've been saying since June 2022, when I called a major market bottom.

Notice also in the chart above that the September and October period, when everyone was panicking over a fresh new market bottom - and even the closing XLY:XLP was moving lower - the intraday XLY:XLP was making new highs. Once again, Wall Street took advantage of early morning gap downs to accumulate their favorite stocks.

I'm sure I'll be adding more in future DMRs about this relationship, but I wanted to pass it along to you today before the market close.

We are seeing some rotation into value today as the Dow Jones and S&P 500 outperform the NASDAQ, but I believe it'll be fairly short-term in nature, lasting a couple days to maybe a week. As earnings season approaches, I'm expecting a rally and one that favors growth over value.

Happy trading!

Tom