From time to time, I like to play devil's advocate as part of an exercise to identify potential wrenches and better understand the market environment we might be heading into.
One "cheat code" I've picked up over the years is to assess Consumer Staples stocks on a relative basis.
As the ultimate defensive sector, Staples are the safe-haven that investors hide out in when the broader market comes under pressure.
So far this cycle, we haven't seen investors run to these stocks for safety. That said, the ratio is at a critical juncture as we speak.
The chart below highlights Consumer Staples $XLP relative to the S&P 500 $SPY, currently at a major support level marked by the dot-com bubble lows.
While XLP/SPY is testing a logical area where buyers might step in, we have yet to see any reversal activity.
If XLP/SPY starts to catch a bid here, it could signal defensive rotation, and if sustained, would suggest an environment where a less aggressive approach is warranted.
However, if you believe this bull market has legs, you should anticipate this level will soon break.
That will tell us to keep our offense on the field for now.
Make sure you don’t miss Sean’s live options event this Thursday at 2 PM ET, as he will reveal the market scenarios he's preparing for in 2025 and the options strategies he plans to use to navigate them.
