Let’s revisit the S&P500 (SPY)  and Consumer Disretionary: Staples ratio (XLY/XLP).

Last month we flagged the outperformance of consumer staple stocks relative to consumer discretionary was signaling the pullback albeit a small one — just over 3 percent around the Italian elections.

If you haven’t noticed staples (XLP) have been outperforming discretionary stocks (XLY) again even while the S&P500 (SPY) closes in on a new all-time high.  Some argue it’s a reflection of the higher dividend yield on staples.   Possibly, but 2.80 percent (XLP) vs 1.50 percent (XLY) is not a sufficient differential, in our opinion.

Thus, we’re nervous the market is getting ready to  pullback a bit here.  We’re also nervous that many others are nervous and that makes us nervous we may miss some upside.   That, folks, is a good characterization of the current market psychology.

We’ve also included a chart with a longer time period.  Note how the ratio led the S&P500 (SPY) during collapse and was first to bottom.

Wonder if the robots and algos get nervous.  You think?

Click charts to enlarge

(click here if charts are not observable)