In this edition of Equity Leaders Weekly, we compare 2 specific sectors which give us insights towards the overall mindset of the consumer and the economy in general. An examination of the point and figure comparison chart of the Select Sector SPDR Consumer Discretionary ETF (XLY) vs. Select Sector SPDR Consumer Staples ETF (XLP) is part one of our report. In the second half we look at the High Grade Copper Continuous Contract (HG.F) to further give us potential insight of economic conditions going forward.
Generally speaking, Investors tend to flock towards Consumer Staples when economic conditions are fragile and migrate towards the Consumer Discretionary area during times of economic growth due to consumers gaining more confidence towards the economy and their own financial well being.To further remind our readers, in analyzing a comparison chart, a rising column of X’s indicates the first symbol in our comparison, in this case Select Sector SPDR Consumer Discretionary ETF (XLY), is outperforming Select Sector SPDR Consumer Staples ETF (XLP) while a declining column of O’s indicates Select Sector SPDR Consumer Staples (XLP) is outperforming Select Sector SPDR Consumer Discretionary (XLY)In looking at the comparison chart of the Select Sector SPDR Consumer Discretionary (XLY) vs. Select Sector SPDR Consumer Staples (XLP) we see that for the last 10 years since 2010 there has been some pretty consistent relative outperformance of Consumer Discretionary stocks vs the Consumer Staples area with only brief periods where the Consumer Staples area outperforms. From July 2018 to March of 2020 we saw a sideways consolidation where neither Staples nor Discretionary stocks outperformed. However, beginning in March of this year we saw a brief massive rally where Consumer Staples outperformed relative to Consumer Discretionary. This brief change in leadership only lasted for one month as we see most recently the Discretionary area is beginning to take over the leadership starting in May which further materialized up until today. Earlier this month XLY broke out from prior resistance and appears to be forming a new bullish upleg. Although economic indicators and news may not appear to be bullish we have to follow what the charts are telling us.
Copper is used by a variety of industries with many applications and is widely considered to be a commodity most sensitive to the world economy, In recent years, Copper has been particularly sensitive to changes in sentiment toward the Chinese economy with China having a significant component of copper demand in its growth phase. The last time we looked at Copper was back on the July 2nd edition of Equity Leaders Weekly. Since that time price has been in an uptrend since bottoming out in April with the break and close above two key resistance levels. Currently price has formed a 3-Box Reversal to the downside. In analyzing the point and figure chart, we see resistance is now at $3.05 where it managed to reach earlier this month. If it breaks above this level and continues its uptrend, next resistance is at $3.17 and, above that, the $3.30 area . To the downside, it is currently at support near $2.90. If Copper can not hold this support level, the next level of support can be found at $2.79.With an SMAX of 7 out of 10, HG.F is showing near term strength against most asset classes. With some heavy resistance levels just above current price it will be interesting to see if copper can add to its bullish run that was started back in April or if there is a trend change and price starts breaking near term support levels.
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