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

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

Posted On September 14, 2021 3:45 pm

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.

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.