NFTRH+; Two US stock market signal ratios (a good cop and a bad one)

A quick look at two items, the guide for a bullish market (QQQ/SPY, also noted in NFTRH 754) and XLV/SPY (which is a defensive sector vs. the broad market and correction/bear signaler).

Here is QQQ/SPY (daily), continuing to flag/correct within the intact uptrend. If that were a stock and all things being equal, it would be a classic bull flag ‘buy’ at the rising SMA 50.

qqq/spy ratio

Ah, but checking in on the other more bearish side of the ledger, is the XLV/SPY ratio, pitting the more defensive Healthcare sector vs. the broad. If this rise above the 50 day average and subsequent hold is the basis for a new upturn in XLV/SPY at a higher low to the August low, the market would see some oncoming pressure, if not a correction or bear resumption.

xlv/spy ratio

QQQ/SPY is in a long-term bull market. Tech is in a long-term bull market vs. the broad US market. It’s leadership is important to maintain for the bulls. We have noted using this chart that QQQ/SPY was knocked down during the rise in inflation expectations (TIP/TLT proxy lower panel) but held its long-term trend channel as expected on this disinflationary rally.

Meanwhile, the long-term situation in XLV/SPY indicated bear markets in 2000 and and 2008 when it bottomed and turned up hard in 2000 and 2008. It turned up hard to kick off the 2022 bear cycle and if it rises anew it would be a bearish market internal. So again, is that a bottom being made on the daily chart above? As a side note, the ratio rose not in a spike, but in a firm rally from 2011 to 2016. So there is an exception. I think that situation had a lot of politics built in regarding healthcare policy. But an impulsive spike like 2001-2002 and 2008 and to a degree, 2022, would be a negative signal on balance.

We should keep an eye on both of these items and other indicators as the market does not always show its cards in a convenient time frame. But it will, and it will probably be soon. So let’s keep QQQ/SPY and XLV/SPY in the mix and try not to force a view on the market. It will advise in concert with the other leadership/risk indicators we’ve been updating.