- High Beta/Low Volatility Stalls Below Resistance
- Discretionary/Staples Meets the 50-Day Moving Average
- Copper/Gold Gets Stuck in the Zone
- Small Caps vs. Large Caps Are Resilient
- High Yield Fades vs. Treasuries
This daily note IS brought to you by Research by Potomac. Access the full Advisor toolkit and get a deeper look at the markets.
Key Themes and Relationships
High Beta vs Low Volatility
The High Beta to Low Volatility Ratio remains stuck between support and resistance and the 50 and 200-day moving average. The 14-day RSI remains in a bearish regime, unable to break above the 60 level on the most recent rally attempt.
Consumer Discretionary vs Consumer Staples (Equal Weight)
The Discretionary/Staples ratio is holding above broken support but remains below the declining 50 and 200-day moving averages. During the rally that began in May, the 14-day RSI did not reach the 60 level and remains in a bearish regime.
Lumber vs Gold
The streak of bearish price action has reached a fourth week for the Lumber/Gold ratio. The ratio has eyes for last year’s lows as it trades below the 50 and 200-day moving averages. Momentum confirms the bearish trend as the 14-day RSI sits in an oversold condition.
Copper vs Gold
After a rally in the prior two weeks, the Copper/Gold ratio has stalled within the consolidation zone that was in place for most of last year. The ratio now sits in a neutral position, between the 50 and 200-day moving averages as the 14-day RSI recedes below 60.
Small vs Large
Once again, as stocks are under pressure this week, Small Caps are demonstrating their resilience relative to Large Caps. The ratio is holding above the 50 and 200-day moving averages as the former is beginning to turn higher. A break of the October/November highs could set the stage for further outperformance. The 14-day RSI is holding above 60 as it tries to break from a bearish regime.
Growth vs Value
Growth remains on the back foot relative to Value as the ratio stalls at resistance below the declining 50 and 200-day moving averages. Momentum confirms the bearish trend with the 14-day RSI in a bearish regime.
High Yield vs Treasuries
We have had the High Yield vs. Treasuries theme on the radar for the past few weeks as we thought that its improvement was worth noting. However, the ratio has failed to capitalize on that improvement and is beginning to fade once again as resistance and the 50-day moving average combined to halt the advance. The ratio remains below the 200-day moving average and the 14-day RSI is holding in a bearish regime.
The improvements that we have seen in risk appetite over the past two weeks are beginning to recede once again. Perhaps investors have decided to become less aggressive ahead of the report on CPI due out today. We are not going to get caught up in the “why.” Rather we note that stocks have not been able to capitalize on those prior improvements or the better breadth that we have been highlighting of late. This keeps the bears in control for now.
If you enjoy reading this Daily Note and would like to go deeper, Research by Potomac features a monthly chart book, sector deep dives, intermarket analysis, and more. Click here to start a Free 30-Day Trial.
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.