If you’ve been following me this year, you know I’m a big fan of using ratios to get a real read on market health and figure out what kind of environment we’re in.
It’s been one of the most consistent tools in my toolbox, and it’s worked all year.
One ratio I always come back to is staples versus the S&P 500. And I’m not alone — JC made it one of the key themes in his latest mid-month call with ASC Premium members.
It’s such a clean way to gauge risk appetite.
When investors are feeling good and leaning into risk, staples underperform, and the ratio moves lower.
But when things get dicey, that line ticks higher as money rotates into safer, more defensive names.
The inverse relationship between stocks and staples-relatives has played out again and again across cycles.
Right now, this ratio is sitting on a key support level.
I can’t think of anything more bullish for equities than this ratio breaking down and making new lows.
If you're betting on a strong back half of the year, it likely comes with XLP/SPY rolling over and getting back below the 2000 lows.
However, if this level holds and reverses, that’s probably happening in an environment where stocks are under stress.
I think the former will happen — and if it does, it opens the door for a powerful leg higher in stocks.
If you want to be on JC’s calls live, see all the charts in real time, and get access to the trade ideas he’s discussing, come join us inside ASC Premium.
