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This day focuses on momentum. If a name is moving fast, I want to be on it. I’ll go through parabolic moves, volatility breakouts and anything the Pinch Point Scanner pulls up that looks tradable.
While the market continues grinding higher and everyone’s fixated on which tech name will rip next, there’s a sector sitting at one of the most extreme undervaluations we’ve seen in over a decade.
I’m talking about Consumer Staples (XLP), which is currently the only sector showing negative returns year to date. That’s right — the only one.
Now, before you dismiss this as “dead money,” hear me out. Because what looks like underperformance today could be setting up one of the better risk-reward plays heading into Q4.
The Divergence That Nobody’s Talking About
Let’s look at the numbers, because they’re pretty stark.
Over the last five years, XLP has returned just 20.65% while the S&P 500 delivered 142% and tech ripped 196%. That’s not just underperformance — that’s a massive divergence.
When you zoom into the last year, Consumer Staples is down while communication services names like Meta (META), Google (GOOG; GOOGL) and Netflix (NFLX) dominate. The gap keeps widening, and we’re seeing one of the biggest stretches of underperformance since 2000.
So what’s driving this? Part of it is consumer behavior. Food prices remain stubbornly high. Dining out has gotten expensive — you’re looking at $17 to $20 for a burrito, drink, chips and guacamole at Chipotle (CMG), which is approaching sit-down restaurant pricing without the sit-down experience or tip.
But here’s the contrarian angle: When consumer spending weakens, this sector becomes the defensive play. And right now, it’s priced like nobody believes that scenario is even possible.
How I’m Positioning for This Setup
I’m not saying Consumer Staples is going to lead the market tomorrow. But I am saying the setup here offers a massive margin for error with asymmetric upside potential.
I’m considering ratio spreads and put structures, targeting strikes down at 2022-2023 lows. The idea is to position with duration — weeks to months — and be ready to scoop up any dips as we head into the fourth quarter.
This isn’t about parking cash in a boring sector. It’s about recognizing when a high-probability income trade shows up with built-in protection. I prefer sector ETFs over individual stocks here because it eliminates idiosyncratic volatility — you’re not betting on one company’s earnings miss or supply chain issue.
The beauty of this play is that it offers protection when times get tough. If the market stays strong, you collect premium. If we see weakness, this sector tends to hold up better than growth names that are trading at nosebleed valuations.
Look, I get that Consumer Staples isn’t the sexiest trade out there. But sometimes the best opportunities aren’t the ones everyone’s talking about. They’re the ones hiding in plain sight, waiting for the market to remember why they matter.
I’ll see you in the markets.
Chris Pulver
Chris Pulver Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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