Chart of the Day - Wednesday, January 25th, 2023

Today’s Chart of the Day was shared by David Keller (@DKellerCMT). It's a ratio chart of the Consumer Discretionary Sector vs. the Consumer Staples Sector over the past two years. The equal-weight version (lower pane) provides a broader representation, as heavyweights like $AMZN & $TSLA distort the cap-weight version. This ratio is used to gauge the health of the broader market. The idea is, Discretionary stocks sell the things we all want (think $AMZN, $TSLA, $NKE, etc.). On the other hand, Staple stocks sell the things we all need and will continue buying no matter how poor the economy is (think toilet paper, toothpaste, and cigarettes - stocks like $PG, $CL, $PM). If the things we want are outperforming the things we need, it's a sign of a healthy consumer and economy. David points out the equal-weight version of this ratio is breaking out of an eighth base. This ratio warned of impending weakness when it peaked two months ahead of the S&P 500 in November 2021. Today, it's hinting at impending strength.