Confirmation For Caution

I will be honest, days like this are annoying.

An event driven weekend led to a gap down across a lot of assets. 

That's part of the game. But the reason for the move matters far less than how price responds after it happens.

Gaps fade. Narratives rotate but Price structure is what stays.

As a technician, the process does not change. 

I still go through the charts to understand the broader message.

And this chart captures it pretty well. 

Confirmation for Caution. 

We're seeing failed breakouts in risk on areas paired with confirmed breakouts in risk off areas. 

Not everywhere, but enough to matter.

Here we are looking at equal weight Consumer Discretionary versus equal weight Consumer Staples. 

Discretionary is a classic risk on group. These are companies tied to confidence, excess demand, and economic optimism. 

Staples sit on the other side of the spectrum. These are necessity based businesses that tend to attract capital when investors are more focused on defense and stability.

This ratio is widely followed, but often without the context that matters. 

That's why I use a three panel layout. 

The absolute chart of Discretionary on top, the ratio in the middle, and the absolute chart of Staples on the bottom. 

Anyone can look at a ratio, but ratios can be misleading if one side is doing all the work. 

The absolute charts provide the needed context to see where the pressure is really coming from.

What we see is cautious confirmation from both sides.

Equal weight Consumer Discretionary attempted a breakout and failed. 

At the same time, equal weight Consumer Staples are doing the opposite, a clean breakout with follow through.

There are other areas of the market still working, and rotation does not automatically mean risk is off everywhere. 

But rotation out of risk and into defense is not where I try to be a hero. 

That is a signal to step back, tighten risk, and wait for the market to shape up again.

It may be a day. It may be a week. Trusting the process allows you to still be here when it does.

Anyway, that’s my two cents.

Thompson Two Cents Live

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