XLP fell out of this 9-year trend line, could be real signal
XLP fell out of a 9-year trend line after printing a Head and Shoulders bearish reversal pattern. This could be a real break. XLP and XLRE are leading indicators of stock market bearishness.
Probably not the fake type of break
There are real trend line breaks and there are fake ones. It is not easy to tell which trend line breaks are real but there are three important clues:
- Real breaks are more likely to be accompanied by high volume.
- Price moves a lot after a real break.
- Fake breaks reverse or show 'regret' very quickly i.e. dead cat bounce.
Here is XLP in the weekly time frame with one solid black candle below that 9-year trend line. Price is now in the second week below that line but at least yesterday's action was a follow through.
This is the year to date performance of XLP. The last snapshot taken on 10 October 2017 showed a XLP YTD performance of 4.06%.
Investors have to decide what this market signal means on an individual level. As for policy makers, the next step of quantitative easing or economic stimulus is to hand shopping vouchers directly to lower and middle income households?