One of the more popular indicators for the “Risk-On-and-Off” trade is the Discretionary/Staples Ratio (N:XLY):(N:XLP).
When the ratio moves higher, Discretionary stocks act stronger, which means that investors should lean toward the “Risk-On” trade.
The opposite is true too when the ratio moves lower, as Staples act stronger than Discretionary Stocks, which means that investors should lean to toward the Risk-Off trade.
The Risk On/Off ratio has declined sharply of late, no doubt about it, which is concerning for the Risk-On crowd.
The decline has taken the ratio to 5-year rising support. The pattern looks just like global markets, which are testing 5-year rising support.
Note that the 90-Day trend is down, 5-year trend is up.
Keep a close eye on this Risk On/Off ratio as it's testing key rising support.
- Above Support = Risk-On Trade from a long-term perspective.
- Below 5-Year Support = Negative message for the Risk-On Trade.
I humbly feel that what the Ratio does at support will have a large impact on portfolios come summer.