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2018issue C1140-43

A confirming workflow for rotating from discretionary to staples

After the advance from the March 9, 2009 low was widely described as the longest bull market on record, the archive compared liquid discretionary and staples vehicles and marked a June 7, 2018 XLP entry only when the XLY-to-XLP relative-strength line, the Stochastic oscillator, and the Relative Strength Index all printed negative crossovers.

  • Consumer discretionary names such as retailers, hotels, apparel, restaurants, leisure, durables, autos, and media were presented as expansion-sensitive, while staples such as food, beverages, household products, drugs, and tobacco were presented as contraction-resilient, without a one-to-one correlation.
  • Among six discretionary ETFs compared, XLY led on assets, volume, and listing depth, while FDIS and VCR were the next most liquid, lower-cost vehicles. XLP, FSTA, and VDC were identified as the most suitable staples ETFs on the same comparison.
  • A June 7, 2018 XLP entry was marked when the XLY-to-XLP relative-strength line, the Stochastic oscillator, and the Relative Strength Index all printed negative crossovers. From that date through August 20, 2018, XLP advanced 10.37% while XLY advanced 3.57% and the S&P 500 advanced 3.13%.
  • The source treated MACD, the Relative Strength Index, the Stochastic oscillator, and a 50-day Moving average as a confirming exit toolkit if expected discretionary outperformance in bull markets failed to persist.
Entries in this reading3 entries
Current trackStochastic oscillator170 readingsRelative Strength Index186 readingsMoving average449 readings

A long bull market framed the need for an exit plan

By August 22, 2018 the advance from the March 9, 2009 low was widely described as the longest bull market on record, which framed the need for an exit plan before a later contraction.

Two sleeves, not a one-to-one match

Consumer discretionary names such as retailers, hotels, apparel, restaurants, leisure, durables, autos, and media were presented as expansion-sensitive, while staples such as food, beverages, household products, drugs, and tobacco were presented as contraction-resilient, without a one-to-one correlation.

Choose the liquid discretionary vehicle first

Among six discretionary ETFs compared, XLY led on assets under management at $14 billion, average daily volume of about 5.5 million shares, inception dating to December 16, 1998, a 0.01% average bid-ask ratio, and a 14.3% three-year annualized return, while also being the only name with both options and futures listed.

FDIS and VCR were the next most liquid, lower-cost discretionary vehicles, with expense ratios of 0.08% and 0.10%, daily volume near 128,000 and 89,000 shares, three-year annualized returns near 13%, and XTF ratings of 9.4 and 9.2.

The staples shortlist followed the same liquidity screen

XLP, FSTA, and VDC were identified as the most suitable staples ETFs on the same comparison, combining the highest XTF ratings, the largest assets and volume, yields of 2.53% or more, and the lowest expense ratios, with all three posting positive net asset flows over one- and three-year windows.

Wait for the line and the oscillators to agree

A June 7, 2018 XLP entry was marked when the XLY-to-XLP relative-strength line, the Stochastic oscillator, and the Relative Strength Index all printed negative crossovers, showing discretionary weakening versus staples.

From June 7, 2018 through August 20, 2018, XLP advanced 10.37% while XLY advanced 3.57% and the S&P 500 advanced 3.13%, illustrating a short defensive window after those confirming crossovers.

A confirming toolkit if discretionary leadership failed

The source treated MACD, the Relative Strength Index, the Stochastic oscillator, and a 50-day Moving average as a confirming exit toolkit if the expected discretionary outperformance in bull markets failed to persist.

A later classification change reset the discretionary sleeve

A September 28, 2018 GICS reclassification removed the Telecommunications Services sector, created Communications Services as XLC, and moved 18 names out of XLY, including 16 media holdings that represented 25.79% of that portfolio, while leaving Amazon's 23% weight in place.

XLY-to-XLP relative strength around the June 2018 staples entry

A trader rotating from offense to defense would have seen discretionary leadership fail on 7 June 2018, when the XLY-to-XLP line printed 2.233 and rolled back through its 20-day envelope as RSI and stochastics also turned down. The path is taken from the daily StockCharts plot of 21 August 2018 and from the price tags printed on that figure.
A trader rotating from offense to defense would have seen discretionary leadership fail on 7 June 2018, when the XLY-to-XLP line printed 2.233 and rolled back through its 20-day envelope as RSI and stochastics also turned down. The path is taken from the daily StockCharts plot of 21 August 2018 and from the price tags printed on that figure.XLY:XLP · Daily · 2018-03-01T00:00:00.000Z to 2018-08-21T00:00:00.000Z

Printed tags such as 2.233, 2.021 and 1.921 are exact reads from the plot. Unmarked vertices are visual estimates to two decimals. The green study is the labelled 20-day EMA with a 2.5-width envelope. Oscillator panes were left off because they use a 0–100 scale.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
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20196-6 pp.Next on Stochastic oscillatorStochastic scan thresholds, averages, and formula syntaxThe published pair used a 12-period stochastic oscillator with a 1-period internal setting and compared that reading with a 3-period simple average of the same oscillator.
All readings on this track · 42 readings
  1. 1987Stochastic fast and slow construction as a rebuildable stack
  2. 1989Building the stochastic oscillator from close location
  3. 1990Monthly stochastics as a multi-year bond regime filter
  4. 1990Walk-forward screen for yen indicator rules
  5. 1990Slow stochastic construction for index pullback entries
  6. 1991Random Walk Index construction with an adaptive lookback
  7. 1991Building a two-stage stochastic oscillator from close location
  8. 1992Constructing fast and slow stochastic oscillator lines
  9. 1992Constructing nested stochastic lookbacks
  10. 1994Construct the four-state price-volume rank before filtering it
  11. 1996Crowded stochastics, false breakouts, and hidden stops
  12. 1997Fade and follow entries from stochastic extremes
  13. 1998Oversold confirmation as a staged rule-based-entry case
  14. 1999Constructing regular and slow stochastic oscillators
  15. 2001Construct a variable-interval simple moving average from stacked extremes
  16. 2001Threshold RSI and stochastic setups with next-bar stops
  17. 2001Two tests of a rate-adjusted earnings-yield gap
  18. 2002Constructing a two-line stochastic from a range-normalized close
  19. 2002Inspect mechanical stochastic daytrade rules on one bar
  20. 2003Constructing an adaptive stochastic RSI
  21. 2003Four parameters that construct a stochastic oscillator
  22. 2004Volume breakout as signal, pullback as entry
  23. 2004A first currency-market checklist with two averages and a slow stochastic
  24. 2005Shared-scale cycle indexes with companion oscillators
  25. 2005Current-bar versus prior-bar range construction for the stochastic oscillator
  26. 2005Two-session moving-average pullback short
  27. 2006Market condition as a permission layer for moving averages and oscillators
  28. 2008Lock the stop at support before sizing a stochastic entry
  29. 2010Construct a center-line volume oscillator and read it with a stochastic oscillator
  30. 2010Sharpened RSI turns with rainbow averages and a slow stochastic
  31. 2011Build a Spearman rank oscillator from ordered closes
  32. 2012Gold as a regime-dependent hedge in the euro-area crisis
  33. 2012Pairing moving averages with variable-length stochastics
  34. 2014Two-leg stochastic stress oscillator as a rebuild drill
  35. 2014Ingress dates as price bases for relative strength, stochastics, and moving averages
  36. 2017Constructing a dual EMA stochastic from range normalization
  37. 2018Constructing a two-stage stochastic RSI for comparable price-oscillator divergences
  38. 2018Combining a weekly stochastic, a long moving average, and two-day resistance
  39. 2018Weekly and daily stochastic readings with a long moving average and support
  40. 2018A confirming workflow for rotating from discretionary to staples
  41. 2019Stochastic scan thresholds, averages, and formula syntax
  42. 2020Constructing Slow %K as a two-stage helper
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All 170 readings tagged Stochastic oscillator
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1987Stochastic fast and slow construction as a rebuildable stack1990Walk-forward screen for yen indicator rules2001Construct a variable-interval simple moving average from stacked extremes2005Shared-scale cycle indexes with companion oscillators2006Market condition as a permission layer for moving averages and oscillators