📡 Consumer Signals

The ratio between Consumer Discretionary (XLY) and Consumer Staples (XLP) is a real-time economic health monitor. When consumers feel confident, they spend on wants; when worried, they retreat to needs. This behavioral shift shows up in ETF prices before economic reports.

The XLY/XLP ratio

This is the foundational ratio for understanding consumer sentiment and market risk appetite.

XLY/XLP Behavior	Signal	Interpretation
Strong uptrend	Risk-on	Consumer confidence high, expansion
Breaking to new highs	Acceleration	Bull market confirmation
Rolling over from highs	Caution	Confidence waning, potential rotation
Sharp decline	Risk-off	Defensive rotation, recession concerns
Bottoming after decline	Potential turn	Watch for cycle change

The 1.20 threshold

When XLY/XLP spikes above 1.20, it often signals short-term overbought conditions:

Timeframe	Avg S&P 500 Return After XLY/XLP > 1.20
1 month	-0.82% (caution)
3 months	Returns improve
6-12 months	Normalize to average

Extreme consumer strength can signal short-term exhaustion while long-term health remains intact.

Key relative charts

XLY/SPY — Discretionary vs. Market

Behavior	Signal
Rising	Consumer leadership, risk appetite strong
Falling	Rotation to defensive or value
Diverging from SPY highs	Warning — rally lacks consumer participation

XLP/SPY — Staples vs. Market

Behavior	Signal
Rising	Defensive rotation, risk-off
Spiking sharply	Panic rotation to safety
At multi-year lows	Maximum risk-on, potential warning

XRT/XLY — Retail breadth

XRT is equal-weighted; XLY is dominated by Amazon/Tesla. This ratio reveals breadth:

Behavior	Signal
Rising	Breadth expanding, smaller retailers participating
Falling	Mega-cap dominance, narrow leadership

When XRT diverges negatively while XLY holds up, only mega-caps are masking weakness.

RSPD/RSPS — Equal-weight consumer ratio

Removes mega-cap distortion from the discretionary/staples comparison:

Behavior	Signal
Rising with XLY/XLP	Confirmed risk-on with broad participation
Diverging from XLY/XLP	Warning — mega-caps masking weakness

Cycle phases

Accumulation (Beginning)

Signals:

XLY/XLP bottoming after decline
Consumer confidence data still weak (lagging)
XRT/XLY showing signs of life

Action: Accumulate discretionary exposure.

Confirmation (Middle)

Signals:

XLY/XLP in clear uptrend
XLY/SPY rising (sector leadership)
RSPD/RSPS confirming breadth

Action: Hold positions. Add on pullbacks.

Distribution (End)

Signals:

XLY/XLP at extreme highs (>1.20)
XRT/XLY rolling over (breadth narrowing)
Credit card delinquencies rising

Action: Tighten stops. Reduce high-beta. Consider XLP.

Quick signal dashboard

Bullish (Accumulate Discretionary)

Signal	What You See
XLY/XLP breaking out	Confidence rising
XRT/XLY rising	Breadth expanding
RSPD/RSPS confirming	Equal-weight participation

Bearish (Rotate to Staples)

Signal	What You See
XLY/XLP breaking down	Defensive rotation
XLP/SPY rising	Flight to safety
XRT/XLY falling	Breadth narrowing

Trading strategies

Risk-On Rotation

Setup: XLY/XLP breaking out from consolidation
Entry: Buy XLY on breakout confirmation
Exit: XLY/XLP breaks below 50-day MA

Breadth Expansion

Setup: XRT/XLY bottoming after mega-cap dominance
Entry: Buy XRT when ratio breaks above 20-day MA
Exit: XRT/XLY breaks below entry level

Defensive Rotation

Setup: XLY/XLP rolling over + credit stress emerging
Entry: Rotate from XLY to XLP when XLP/SPY breaks out
Exit: XLY/XLP bottoms and reverses

Ratio quick reference

Ratio	Rising Means	Falling Means
XLY/XLP	Risk-on	Risk-off
XLY/SPY	Consumer leading	Rotation away
XLP/SPY	Defensive rotation	Risk-on
XRT/XLY	Breadth expanding	Mega-cap dominance
RSPD/RSPS	EW risk-on	EW defensive