A historic spread between Staples and everyone else



Staples vs. the Nasdaq

We've already seen that internal trends have been powerful in defensive sectors like Consumer Staples but curiously weak in higher-beta areas like the Nasdaq 100. It's even more fragile in the broader measures that look at the entire Nasdaq exchange.

The percentage of Staples stocks trading above their 50-day moving averages reached 90% last week, while fewer than 25% of stocks on the Nasdaq managed to hold their medium-term trends.

Staples above 50 day average versus Nasdaq stocks

That's the widest spread in trends between the two groups in at least 30 years.

It wasn't very successful if we took this as a warning sign for the broader market. Looking at returns in the S&P 500 after every signal since 1990, only one of them preceded a large and protracted decline.

Stat box

With an average daily move of more than 1.3% through the first 3 weeks of the month, the Nasdaq Composite is on track for the 8th most volatile December since its 1971 inception.


Simple trend-following for switching between Emerging Markets and the S&P 500

Jay showed a simple trend-following strategy that switches between emerging markets and the S&P 500.

The chart below displays the fluctuations in the relationship between EM and SPX since the late 1980s.  

The "Switching" strategy held emerging markets if the trend was positive and the S&P 500 if it was negative. It was 100% invested at all times.

As a baseline, we will also split money evenly between the two indexes and rebalance to a 50/50 split each year's first Friday. We will refer to this as the "Buy/Hold/Rebalance" strategy.

The chart below displays the growth of $1 invested using the Switching strategy versus $1 in the Buy/Hold/Rebalance strategy.

$1 in the Switching strategy grew to $70.91, while $1 in the Buy/Hold/Rebalance strategy grew to $19.08. The Switching strategy outperformed the Buy/Hold/Rebalance strategy by a factor of 3.72-to-1.

The post titled A historic spread between Staples and everyone else was originally published as on SentimenTrader.com on 2021-12-21.

At SentimenTrader.com, our service is not focused on market timing per se, but rather risk management. That may be a distinction without a difference, but it's how we approach the markets. We study signs that suggest it is time to raise or lower market exposure as a function of risk relative to probable reward. It is all about risk-adjusted expectations given existing evidence. Learn more about our service , research, models and indicators.


Follow us on Twitter for up to the minute analysis of market action.


Not ready to signup up for a free trial yet?

Signup for our Daily Lite email to receive highlights of our daily report, research and studies.


Follow us on Twitter:

Subscribe to our Youtube Channel:


RSS Feed

Subscribe to the Blog RSS feed

Tags