Restaurant sector signals move to underperformance

On 04 December, I showed how the S&P 500 Restaurants Index was setting up to move to underperform against the S&P 500 and some sectors. This move looks like it is starting.

S&P 500 Restaurants Index versus S&P 500 Index (weekly)

Having traded sideways for 16 months, the 14 week RSI is not oversold, it is only just starting to move away from mid range

S&P 500 Restaurants Index versus S&P 500 Index (daily)

• Previous moves to the October 2012 support level were quickly reversed
• This time, support broke on 10 December and the break has held
• Given the above, the long term moving average crossover and the 14 week RSI not being oversold, the possible RSI divergence on the daily chart is of less importance

I didn’t find any of the larger cap restaurant stocks (those in the SPDR Consumer Discretionary XLY) setting up exactly as above. I will show the trade as a sector trade even though in practice, it may not be directly tradable.

The trade

• A short position in the S&P 500 Restaurants Index versus the S&P 500 Index is opened
• The sector index closed at 905.59 on 17 December, so the pair is opened at 0.508473
• The stop loss is at first, back above the 16 month range at 0.55, which is 8.2% higher