Will Cyclicals Finally Break Out vs Staples?

We've been watching this particular pair consolidate for over three years now. Cyclicals vs Staples bottomed out in November of 2008, several months before the S&P500 and Dow Jones Industrials put in their epic bottom in March. This, to us, was a sign that the internals of the market were strengthening before the price action inevitably confirmed it.

Last week the $XLY vs $XLP ratio closed at the highest levels since 2007. But can this really be the breakout that we've been watching for the last few years? Or just another fakeout?

As we approach this resistance, we have seen a series of higher lows that goes back all the way to summer of 2010. This tells us that with each dip, the buyers have been less and less patient. That's a good thing. Coming into this week, the pair is so far holding above the 2011 peak that coincides with the highs in January of this year. As long as we're on top of this resistance, this pair could have some legs coming out of this multi-year base.

Tags: $XLY $XLP