A New Relative Strength High for Cyclicals

A reader points out that the ratio of the Morgan Stanley Cyclical Stock Index (^CYC) relative to the S&P 500 (^SPX) has reached another new all time high. The ratio closed over 0.76 for the first time ever yesterday.

I think there are three takeaways from this. The first is that it could be that cyclicals are due to lag the market very soon. That’s one of the reasons why the Buy List tilts toward non-cyclical areas like health and consumer stocks.
The second is that if the market is correct, then this is one of the sharpest V’s in a V-shaped recovery that I’ve ever seen.
The third is that you can really see how much of the market’s swoon and recovery was focused on cyclicals. If you had completely ignored this ratio from September 2008 to September 2009, then you’d find it almost exactly where you left it.

Posted by Eddy Elfenbein on January 6th, 2010 at 12:53 pm

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