November 20, 2015
Trades & Tutorials
By Geoff Bysshe
The two ETFs, XRT (SPDR S&P Retail) and the XLY (Consumer Discretionary Select Sector SPDR), are measures of the strength of the consumer, and for 9 years they tended to trend in the same direction. But now they are going in opposite directions, and traders should take note!
When markets diverge like this, traders can usually find good trading opportunities, and important insight into the future direction of the general market.
In the video below I cover the divergence as made clear by comparing the performance of the ETFs on a percentage change basis.
Below the video you’ll also find a chart that illustrates the relative value of the two ETFs as measured by a ratio of XLY divided by XRT. This is another measure of the changing relationship between the two.
Regardless of how we represent the shift in their relationship, the questions it raises are same. Is the traditional retail shopper dying? Is XLY over valued? And most importantly, if their trends have typically reflected the trend in the generate market, will the market struggle to move higher until XRT resumes its uptrend, or will the market rollover if XLY joins XRT’s down trend.
This chart illustrates the relative value of the two ETFs as measured by a ratio of XLY divided by XRT.
