Key Points

  • Software and Services are Not the Same
  • Discretionary vs. Staples Trades Near the Highs but Mind the Divergence
  • Lumber/Gold Ratio Holds Support but Can’t Rally
  • Small Caps Remain in a Relative Downtrend
  • Growth vs. Value Fights with the Breakout Level

Chart in Focus:

They are not the same. Within the Technology space, Software, and Services are often lumped together. However, when looked at separately, we can see there is a clear difference in the current trends. Services have rolled over after making a high in July and are now trading below the 50-day moving average. Software remains in a clear and steady uptrend, above its rising 50-day moving average.

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

The ratio of the S&P 500 High Beta Index relative to the S&P 500 Low Volatility Index made another lower low last week before rebounding to retake its position between the declining 50-day moving average and the rising 200-day moving average. The 14-period RSI is in the middle of the range, confirming the ongoing consolidation in the ratio. One potential positive is the bullish divergence as the indicator made a higher low last week. This divergence would be confirmed with a sustained move above the 50-day moving average.

Consumer Discretionary vs. Consumer Staples (Equal Weight)

The ratio of Consumer Discretionary stocks relative to Consumer Staples stocks is holding above the rising 50 and 200-day moving averages and support at the 2018 highs. As the ratio trades near the recent highs, we note that the 14-day RSI has made another lower high, pointing to a lack of upside momentum.

Copper vs. Gold

The Copper/Gold ratio briefly undercut support last week but held above the rising 200-day moving average. The subsequent rebound is testing the underside of the 50-day moving average. Last week’s pullback below support may be viewed as a false breakdown but we need to see a move above the 50-day moving average before we can have confidence that the ratio is ready to attack the May highs. The 14-day RSI is in the lower portion of the range, indicating a lack of upside momentum.

Lumber vs. Gold

The Lumber/Gold ratio is holding price-based support below the 50 and 200-day moving averages, but the rebound that we thought was possible when we last highlighted this chart, two weeks ago, remains elusive. There is a bullish divergence in play as the 14-day RSI has made a higher low, but we want to see a move above the 50-day moving average to have confidence that the decline in price is reversing.

Small vs Large

The ratio of Small Caps to Large Caps continues to grind to the downside, below the 50 and 200-day moving averages. The 14-day RSI is in a bearish regime, with recent highs unable to break above the 60 level. There is a bullish divergence in play (dotted lines), but we need to see a move above the moving averages to be comfortable claiming that the downtrend has reversed.

Growth vs Value

The Growth/Value ratio for the S&P 500 is hovering around the near-term support level above the 50-day and 200-day moving averages, keeping the door open to an attack of the September highs. However, it appears that upside momentum is waning as the 14-day RSI has made a series of lower highs.


The title of today’s note “A Whole Lot of Nothing!” says it all. Perhaps it is the doldrums of August or investors are waiting to hear from Fed Chairman Powell at Jackson Hole today. Whatever the reason, the trends that were in place two weeks ago, remain in place today. There are some divergences that hint at the potential for trend changes, but until key levels are broken, we are hard pressed to give them more than a passing glance.

Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.