This Market Is Energized, Not A Utility
Dragonfly Capital | Jan 24, 2013 08:11AM ET
Need another obscure measure to determine if the market is doing well? Straight from the tool shed the ratio of Energy Sector (XLE) to the Utilities Sector (XLU) is one that not many use. The ratio chart below shows that it acts as a good proxy for the S&P 500 (SPX).
This makes some sense as it also represents the flow of money between defensive utility stocks that pay steady dividends and stocks that generate much of their performance off of riskier commodities. But hidden in this chart is a more disciplined method for discerning whether it is time to be long the market or not.
Where the ratio is a decent fit for the S&P 500, the 20-day Simple Moving Average (SMA) of the ratio viewed as a trigger gives a great signal for being long or short the market. The blue circles show the last 8 times the ratio crossed the 20-day SMA. Each time has been a good signal to either enter long or short in the S&P 500. And where is it now? Pointing long!
Disclaimer: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Original post
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