Let me start by reminding everyone that I believe the most important relationship in the stock market is how consumer discretionary stocks (XLY) perform relative to consumer staples stocks (XLP). This ratio (XLY:XLP) has a VERY strong positive correlation with the S&P 500. In other words, when the S&P 500 advances, a corresponding rise in the XLY:XLP ratio is to be expected. When it doesn’t rise to corroborate the benchmark’s rally, it typically leads to lack of S&P 500 follow through. I’ll show you visually what this positive correlation looks like since the turn of the century: From this chart alone, it’s clear that what happens to consumer stocks, and their relationship to one another, really matters in the grand scheme of things. Now let’s look at an intraday chart of the XLY and XLP from last week: The top panel is the XLY and the bottom panel is the…
