The XLV/SPY ratio is a potential risk-off signal, and it is turning back down
When Healthcare (XLV) rises vs. the broad market (SPY) it is a risk-off signal. Hence, we took note of the recent bounce in the ratio, which had remained well within a downtrend. But in a bubbly market any sign of a low in an important indicator should be kept on watch.
Today we find the XLV/SPY ratio failing in its bounce attempt.
When a real bottom and upturn does happen this longer-term chart advises it should coincide with the next broad bear market, or strong correction at least. But with the downturn above, the bulls and rampant greed may be taking the ball back after giving the bears a quick turn.
What comes next? If momentum holds up we’d see bulls chasing bears around the court, playing Keepaway, giving wedgies and generally inflicting indignity.
There are other indicators that have been on bear alert for months upon months. But there are yet others that have been sound asleep. The alert indications are what they are; they are a progression toward an economic countercycle, bust and bear market. But the time-sensitive stuff is still asleep: XLV/SPY, High Yield Spreads, VIX, etc.
So there is not and has not been anything actionable to the bear market case yet. It’ll come, but only when all indications unite to that theme.
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