Bull Market Behavior

Sign up for my free note here.

One of the most important things I’ve learned over the years is to first identify the environment we’re in.

From there, it’s just about applying the right strategy—regardless of the conditions.

One of my favorite ways to identify the market environment is by looking at the relationship between Technology and Consumer Staples.

These two are opposite poles. Tech is considered an offensive sector, while Staples are more defensive in nature.

What I'm looking at here is how money flows into one and out of the other.

And right now, something big is happening.

After 25 years, the XLK/XLP ratio is finally breaking out above those dot-com bubble highs.

When this line’s going up, money’s rotating into offense and out of defense.

It’s telling you investors are embracing risk.

The opposite is also true—when Staples outperform, it usually coincides with a period of equities struggling.

That’s why I always track this ratio alongside the S&P itself.

Historically speaking, these two lines tend to move together.

Seeing both make new highs in tandem confirms we’re in a healthy environment—and I’ll keep looking for stocks to buy.

Alfonso