XLP vs XLY

Here we have two charts one of XLP which is the S&P 500 ETF for Consumer Staples and XLY which is the ETF for Consumer Discretionary. Notice the strength and weakness in these two charts, one is stronger then the other and by determining which is stronger we are able to determine the market outlook.

When XLY is above XLP that tells that that consumers aren't afraid of the future outlook of the economy and spend money on discretionary products that aren't a necessity. The opposite stands for when XLP is above or stronger then XLY, it tells us that consumers are fearful and only spend their money on necessities and things they really need. Now how does this help us? Right now XLP is stronger then XLY and that tells us that consumers are still fearful and dont go around splashing cash on items they down really need. And that is bearish on the overall outlook of the global economy.

HD is a good example of the weak XLY sector as demonstrated in the chart below and KFT is also a good example of a stock in the XLP sector.