Key Points

  • Big Relative Breakout for Semiconductors
  • Discretionary Over Staples Is Bullish for Equities
  • Copper/Gold and Lumber/Gold Remain Under Pressure
  • New Highs for Growth vs. Value
  • Small Cap Breakout Does Not Translate to Leadership

Chart in Focus:

With Authority. That is the best way to describe the breakout on the relative strength chart of the S&P 1500 Semiconductors and Equipment Index vs. the S&P 500. After consolidating since February, the ratio has exploded to the upside above the 50 and 200-day moving averages. At the same time, the 14-day RSI of the ratio has become overbought, registering its highest reading since July 2019.

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 pushing toward the top of the consolidation zone, above the rising 50 and 200-day moving averages. We continue to have an upside bias that favors a break to new highs as the 14-day RSI is in an uptrend since becoming oversold in July and is trading in a bullish regime.

Discretionary vs Staples

The ratio of Consumer Discretionary stocks relative to Consumer Staples stocks remains in an uptrend after breaking resistance. The ratio is above the rising 50 and 200-day moving averages, with the former lining up with price-based support. There is some momentum support behind the move higher in price as the 14-day RSI is in a bullish regime after making a series of higher lows. We would like to see this indictor become overbought to add to this momentum confirmation.

Copper vs Gold

The recent breakout in the Copper/Gold Ratio is proving to have been a false start as it has first fallen back below resistance and has now moved below the 50-day moving average. The key test will now be faced at the 200-day moving average. The 14-day RSI is also facing a test as it trades near 40, the level that marks the lower bound of a bullish regime. If the ratio is going to make another attempt at breaking above the 2018 highs, this would be the place to begin.

Lumber vs Gold

The Lumber/Gold ratio is dancing with the rising 50-day moving average and remains below the 200-day moving average as a rebound from the precipitous May – September decline is proving to be difficult to sustain. For now, the recent action can only be defined as a base-building process above support. It is encouraging to see that the recent pullback has not led to an oversold reading on the part of the 14-day RSI. However, choppy trading is likely to persist until the October peak is taken out.

Small vs Large

The ratio of Small Caps vs. Large Caps remains in a consolidation, stuck above support but between the 50 and 200-day moving averages. This consolidation is confirmed by the fact that the RSI has not been able to become overbought on the way up or oversold on the way down. In notes this week, we have highlighted the fact that Small Caps have finally emerged from the consolidation that had been in place since March. However, we can’t yet make the case that they are leading.


Growth vs Value

The Growth vs. Value theme has broken to new highs after retaking the 50-day moving average. Last week we highlighted the fact that disappointing earnings reports from AAPL and AMZN presented an opportunity for Value to take the ball and run with it. They missed that opportunity. The new high for the ratio is confirmed by momentum, with the 14-day RSI trading to overbought levels. If this ratio is above the breakout level, Growth over Value is a compelling case, especially with Copper/Gold and Lumber/Gold under pressure.


This week’s key developments are the breakouts in the Growth vs. Value ratio and Semiconductors vs. the S&P 500. Both themes were highlighted in Who Charted? earlier in the week. It is interesting to note that Growth leadership coincides with the Copper/Gold and Lumber/Gold ratios remaining under pressure. It appears that investors are rotating away from the cyclical themes once again.

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.