With the S&P 500 ($SPX) rallying hard last year, we saw dividend stocks fall to the wayside in relative performance. The chart below shows the ratio between the S&P Dividend ETF ($SDY) and the S&P 500 ($SPY), which has now fallen to its 2012 low. With selling coming into the market to start the year, the ratio has begun to consolidate.
However, momentum has been making higher lows on the Relative Strength Index. The RSI indicator has put in a positive divergence that would suggest market internals are hinting that traders may soon begin to show favor towards dividend paying stocks. We can see signs of this already with two dividend-heavy sectors, utilities ($XLU) and REITS ($VNQ) up 6.7% and 7.6% YTD, respectively. We’ll see if the relative performance between $SDY and $SPY holds support and begins to confirm the bullish move currently taking place in momentum.
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