The Winning Trade It’s Not Too Late to Get In On

by Options Sensei

The past year has been characterized by a rotation among sectors; lockdown vs. opening.  Spending spree vs hoarding (case in point: toilet paper). So what do we make of the fact that consumer staples are still underperforming, even as the Delta variant seemingly curtails discretionary spending such as travel and leisure?  

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Staples are making new multi-decade lows relative to the S&P 500 (SPY) and are on the brink of a catastrophic breakdown relative to consumer discretionary stocks:

consumer staples vs s&p 500

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These are all characteristics of an environment where stocks should perform well.

It’s when staples catch a bid relative to other stocks that we tend to see a problem.

Meanwhile, a lot of investors are asking me whether or not stocks will correct.

May I remind you. The majority of stocks have been in a correction for most of 2021. With just a handful of stocks doing well

The two below have been consistently leading indicators for the overall market.

We lean on these for information.

The way I see it, if these two can get going, there are few things more bullish for the equities market:

I continue to point to the one below as arguably the most important chart in the world:

s&p industrials chart

An upside resolution here will likely tell us a lot about the strength of stocks this Fall. 

If the US 10 Year Yield can get back above 1.4% and stay there, that would likely be a positive for small caps and bank stocks, two big keys to a bull market.

I think the one below is the final piece to that puzzle.

us 10 year yield

This is one of the seasons that the Options360 Concierge Trading Service added a bullish position in the Russel 2000 (IWM). if rates start rising, banks will begin lending, which in turn, will spur economic growth among smaller, more cyclical stocks.

It’s not too late to get in on this trade!

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