Are Consumer Staples Hated Enough to Rally?
The sector is down and out, with few kind words from investors. Does that mean it's time to buy?
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Come on now, that wasn’t so bad, was it? It was a standard overbought pullback. Just look at how much the Overbought/Oversold Oscillator has backed off already.
Aside from that, not much else changed. I should, however, note that last week the McClellan Summation Index came into the week with a cushion of -2600, meaning it would take a net negative advance/decline line of -2600 to get the push up in the indicator to halt the rise. I thought that was a decent cushion.
We have now had five of the last six trading days with negative breadth. Nothing awful, just persistent. That cushion from a week ago is down to -200. So the ‘market’ may rally on Tuesday, but if breadth doesn’t do so, that small positive we got from this indicator a few weeks ago will be swept aside.
As several of the big-name strategists are forming their 2026 views, I see several of them are in the camp that the smalls will beat the bigs. I don’t want to beat a dead horse since we spent much of yesterday’s column reviewing this, but unless that downtrend line on the RSP relative to the S&P chart is breached, there is no trend change in my view.
This doesn’t mean I think 2026 is going to be another year of Mag 7 greatness. We’ve already reviewed several times that the Magnificent Seven are not all magnificent. I have said that for months and still believe that to be the case. But I have yet to see a group of stocks, with the exception of the semiconductors and biotech, that has had a sustainable uptrend since last summer.
Everything has been fits and starts outside of the semis and biotech. Oh, sure, the Transports have this fabulous breakout and the drugs had a great run, but is anything feeling like a big theme you want to jump on board, or does it all feel like let me play the trade? Seems like the latter to me.
With that in mind, take a look at (XLP) , an ETF to be long the staples. No one seems to like them. Heck, it’s not a pretty chart. It has done nothing all year. But this time of the year – well, as we head into 2026 — sometimes folks like to take a flyer on something that has been down and out. I am going to see if XLP can hold this 77 area on this trip down. The hate is surely there, so maybe there’s an upside trade in it.
I should finish with the bonds. You know where I stand (see yesterday’s missive), but it seems the majority are now expecting a "hawkish cut." The Fed might do a hawkish cut, but look at the chart of (TLT) heading into the October meeting when there was a hawkish cut (arrow). No one expected it, and TLT was pushing up against that 92-93 resistance I kept harping on about. Folks were looking for a breakout. Now TLT is coming into support, and after the move it has had in the month of December, getting oversold. Sometimes it’s not the news but where the underlying security is when the news arrives.
Maybe I’m just being too contrarian, but the boat seems quite loaded on the hawkish cut side.
