A Big Day
for Some Key Themes

Key Points

Chart in Focus:

The Technology Hardware and Equipment Index will be in focus today on the back of the earnings disappointment from AAPL last night. In fact, in the next few days, the group may be on watch for a breakdown, through support and the flat 50-day moving average. Should the group break these support levels, there is downside potential to 2,700. On a relative basis, Hardware and Equipment has been a laggard, and the ratio remains below the declining 50-day moving average and price-based resistance.

The following relationships can help give us a sense of the level of risk appetite on the part of investors.

High Beta vs Low Volatility

We continue to see the potential for an upside resolution for the High Beta to Low Volatility ratio. The ongoing consolidation has an upside bias as the ratio trades above the rising 50 and 200-day moving averages. At the same time, the 14-day RSI is in a bullish regime after making a series of higher lows. 

Discretionary vs Staples

The ratio of Consumer Discretionary stocks relative to Consumer Staples stocks is grinding higher after breaking from its consolidation. Price is above the rising 50 and 200-day moving averages and the 14-day RSI is in the upper portion of the range after making a series of higher lows. Some may attribute the strength in Discretionary to the recent move higher in TSLA, however, we are using the equal weight versions of these indices to account for the fact that TSLA and AMZN make up nearly 40% of the Discretionary sector on a cap-weighted basis.

Copper vs Gold

The breakout in the Copper/Gold ratio has become suspect after quickly pulling back into the consolidation zone to test the 50-day moving average. The ratio remains above the 200-day moving average, the zone between these two moving averages should provide support in the near-term. We note that as support is tested, the 14-day RSI is holding above 40, to remain in a bullish regime. This would set the stage for a rebound and a continuation to the upside for the ratio. Quickly retaking the 2018 highs is important for leadership in the cyclical areas of the market.

Lumber vs Gold

Last week we noted that the Lumber/Gold ratio was pausing between the 50 and 20-day moving averages and that this pause would likely resolve to the upside. That view is being put to the test this week as the ratio is now testing the rising 50-day moving average while the 14-day RSI breaks trend. For now, the benefit of the doubt remains to the upside as we look for the 50-day to provide support. However, a break of this average sets the stage for a test of the July – September lows.

Small vs Large

The ratio of Small Caps vs. Large Caps remains in a stalling pattern below the 200-day moving average and resistance. This consolidation is confirmed by the fact that the RSI has not been able to become overbought on the way up or oversold on the way down. However, we note that support is being tested on what could be an important day for the ratio. Both AMZN and AAPL are trading lower (as of this writing) following earnings reports that disappointed investors last night. This has the potential to weigh on large caps today, providing an opportunity for this ratio to rebound.

Growth vs Value

Interestingly, the Growth/Value ratio is testing resistance above the 50 and 200-day moving averages. Why is this interesting? Because the same dynamic that has the potential to impact the ratio of Small Caps to Large Caps, AAPL and AMZN, is likely to have an impact here as well. In this case, it will be an opportunity for Value stocks to take the ball just as Growth is on the verge of a breakout. Note that the 14-day RSI is making a lower high on the breakout attempt.

Take-Aways