Take-Aways:
After giving “risk-on vibes” last week, many of the key themes that we track continued higher until meeting either moving average or price-based resistance. Breaking above these levels is now key for bulls to have confidence that equities can rally into the end of the year. From a factor perspective, there is no change to the trends which still favor Value to Growth and Small Caps to Large Caps.
Key Themes and Relationships
Semiconductors vs. S&P 500
Semiconductors remain above support and the 50-day moving average relative to the S&P 500 but were rejected by the declining 200-day moving average. Breaking above this measure of long-term trend is the next step in the healing process for this ratio.
The 14-day RSI become overbought on this week’s rally attempt. This is an encouraging data point as it signals that there was strong momentum behind the rally from the October lows. Bulls now want to see this indicator hold above 40 on price pullbacks.
High Beta vs Low Volatility
The High Beta/Low Volatility has cleared the 200-day moving average above the rising 50-day moving average but was turned away at resistance. Breaking above this level would be a step in the direction of completing a bearish-to-bullish transition.
The 14-day RSI traded above 60 and has not been oversold in nearly a year. A case can be made that momentum is beginning to shift in favor of the bulls.
Consumer Discretionary vs Consumer Staples (Equal Weight)
The Discretionary/Staples ratio has regained the 50-day moving average but has been rejected by the declining 200-day moving average. Breaking above the 200-day and resistance at the pre-COVID levels could set the stage for further outperformance by Discretionary.
The 14-day RSI moved above 60 and has not been oversold since May. Momentum may be shifting in favor of the bulls in the near-term.
Growth vs Value (Large Cap)
The Growth/Value ratio remains below the 50 and 200-day moving averages. The ratio is still below the May lows, keeping the 2018-2019 consolidation zone in play.
The 14-day RSI remains in a bearish regime.
Small Caps vs Large Caps
The Small Cap/Large Cap ratio remains above a short-term support level but can’t seem to break above the peaks from October/November 2021. Moving above this level would put the Small Caps in a strong leadership position.
The 14-day RSI is holding above the short-term downtrend line as it shows signs of a shift to a bullish regime.
High Yield vs Treasuries
The High Yield to Treasuries ratio continues to trade between support and resistance and between the moving averages. We are waiting on a clear directional break.
The neutral price trend is confirmed by the 14-day RSI trading in the middle of the range. However, the lack of oversold readings of late tilts the odds slightly in favor of an upside resolution.
Lumber vs Gold
The Lumber/Gold ratio remains below support and the 50 and 200-day moving averages. It’s hard to make a strong case here until the moving averages are broken to the upside.
The 14-day RSI is beginning to lose support near 40.
Copper vs Gold
The Copper/Gold ratio continues to trade in a neutral position between support and resistance, and between the moving averages. It is hard to have a directional bias now.
The 14-day RSI is in a neutral position. Bulls would like to see this indicator become overbought as/if the ratio moves above resistance.
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