Key Points
- Small Caps Continue to Lead Large Caps
- Lumber/Gold Pulls Back to Test the Breakout Level
- Copper/Gold Is Not Confirming Lumber/Gold
- Another Lower Low for Discretionary/Staples
- High Beta vs. Low Volatility Breaks Support, Then Rebounds
Key Themes and Relationships
High Beta vs Low Volatility
The High Beta to Low Volatility Ratio briefly undercut support before rebounding back into the range. The ratio remains below the declining 50 and 200-day moving averages. The 14-day RSI is in a bearish regime despite not becoming oversold this week. Until the ratio can break above the moving averages, the bias remains toward the downside (i.e., risk-off).
Consumer Discretionary vs Consumer Staples (Equal Weight)
The Discretionary/Staples ratio made another lower low below the declining 50 and 200-day moving averages this week, keeping the trend to the downside and in a risk-off position. Despite making a higher low as price made a lower low, the 14-day RSI remains in a bearish regime, lending momentum confirmation to the price action.
Lumber vs Gold
The Lumber/Gold Ratio remains in an uptrend but has pulled back to test support at the breakout level. The ratio remains above the 50 and 200-day moving averages, keeping the bias to the upside for now. The 14-day RSI is in a bullish regime but failed to make a new high with price last week.
Copper vs Gold
The Copper/Gold ratio is stuck in the range that has marked trading for more than a year. The ratio sits below the pinched 50 and 200-day moving averages, and the 14-day RSI is in a neutral position. While we have yet to see a breakdown, we do note that this ratio has not been confirming the strength that we have seen in the Lumber/Gold ratio.
Small vs Large
We have been highlighting the surprising outperformance of Small Caps over Large Caps for the past few weeks, and the ratio continues to move higher. This week, the ratio remains above the 50-day moving average and has breached the 200-day moving average. Closing above the October/November highs would likely serve to complete the bearish to bullish reversal and put Small Caps in a leadership position. The 14-day RSI is moving to a bullish regime, confirming the price trend.
Growth vs Value
The Large Cap Growth vs. Value theme remains in a downtrend below the 50 and 200-day moving averages, keeping the bias to the downside (in favor of Value). The 14-day RSI is in a bearish regime but has been making higher lows of late. Despite this divergence, until the ratio moves above the moving averages, it is hard to make the case for Growth.
Take-Aways
While there are some divergences that have caught our attention, the trends for the key themes that we track remain largely tilted toward less risk-taking on the part of investors—until these divergences are followed by prices breaking above key levels, risk management, and an eye toward playing defense are likely to be top of mind for investors.
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