Key Points

  • Absolute and Relative Highs for REITs
  • Odds Favor a Breakdown for High Beta vs. Low Volatility
  • Discretionary vs. Staples Remain Under Pressure
  • Large Over Small into the New Year
  • Growth Still Preferred Over Value in Large Caps

Chart in Focus:

Look no further than the Real Estate Industry group to get a sense of the defensive posture of the market currently. Real Estate has broken to new highs on an absolute and relative basis, trading above the rising 50-day moving averages in both cases.

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 High Beta to Low Volatility ratio is pinned between support and the declining 50 and 200-day moving averages, remaining in consolidation that has marked trading for the majority of 2021. The 14-day RSI has shifted to a bearish regime, recently becoming oversold and unable to move above 50 on rally attempts. These dynamics increase the odds that the ratio will break to the downside, but we will continue to watch for confirmation via price.

Consumer Discretionary vs Consumer Staples (Equal Weight)

The ratio of Consumer Discretionary stocks relative to Consumer Staples stocks remains below the declining 50, and 200-day moving averages as the defensive Staples have been exhibiting strong performance over the past month. There is still a downside before an important support level is reached. The 14-day RSI has been making lower highs after failing to become overbought, indicating that the current move lower is supported by momentum.

Lumber vs Gold

The Lumber/Gold ratio was stronger again this week. The 50-day moving average is above the 200-day moving average, and now both should be considered support should a pullback begin to take hold in the near term. These are important levels to watch with the 14-day RSI overbought.

Copper vs Gold

The Copper/Gold ratio continues to search for direction as it hovers within the consolidation zone that has been in place for most of 2021. The ratio is in-line with the 50 and 200-day moving averages. Price-based support continues to hold while the 14-day RSI sits in the middle of the range, confirming the neutral trend.

Small vs Large

Small Caps remain in a downtrend, below broken support relative to Large Caps. The ratio is also below the declining 50 and 200-day moving averages. The 14-day RSI also remains in a downtrend and is moving into a bearish regime. It is hard to make the case that investors are seeking risk with these dynamics in place.

Growth vs Value

While we have been making the case of favoring Growth over Value and continue to do so, we are mindful of where this view will be invalidated, and risk will have to be managed. The rising 50-day moving average and the breakout level must hold for Growth to retain top position over Value. Should those levels give way, the 200-day moving average will be in play.


Investors move into the final day of the year in a defensive posture despite the S&P 500 trading near record levels. In that environment, the trends are likely to continue to favor Growth over Value and Large over Small.

Have a Happy New Year!

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.