Holding
Their Ground

Key Points

Key Themes and Relationships

High Beta vs Low Volatility

The High Beta/Low Volatility ratio is now in a holding pattern between support and resistance as well as the 50 and 200-day moving averages. The fact that the 14-day RSI has not become oversold since December is an interesting tell for the direction of the eventual break from the pattern. However, we would like to see a move through resistance before committing to a bullish view.

Consumer Discretionary vs Consumer Staples (Equal Weight)

The Discretionary/Staples ratio is doing battle with the 50-day moving average as it trades below resistance at the pre-COVID levels and the declining 200-day moving averages. The 14-day RSI made a higher low in June, even as the price made a lower low. This bullish divergence could signal the start of a base-building process.

Growth vs Value (Large Cap)

The Growth/Value ratio is holding above the 50-day moving average, which is turning higher at support. The ratio must still contend with the declining 200-day moving average. Breaking above that level sets the stage for a potential run to new highs. The 14-day RSI has been making higher highs of late, signaling the potential for a momentum shift.

Small Caps vs Large Caps

The Small Cap/Large Cap ratio remains in a consolidation zone as it oscillated around the 50 and 200-day moving averages. We are still looking for a clear break from the zone. A move above the October/November peaks would confirm a bullish trend and greater risk appetite on the part of investors. A break of support would send the opposite message. There remains a slight edge to an upside breakout as the 14-day RSI has held above the 40-level of late.

Lumber vs Gold

Once again, the Lumber/Gold ratio has faded from the declining 50-day moving average, which is below the 200-day moving average, confirming the downside bias that we called out last week. The 14-day RSI remains in a bearish regime.

Copper vs Gold

The bounce from support for the Copper/Gold ratio continues to play out below the declining 50 and 200-day moving averages. While this is somewhat encouraging, there is still a lot of overhead resistance, and the 14-day RSI remains in a bearish regime. 

High Yield vs Treasuries

The High Yield to Treasuries ratio is holding above the 50-day moving average below the 200-day moving and resistance. Taking out these resistance points is key to signaling further increases in risk appetite in the market. The 14-day RSI is having trouble at the 60-level and remains in a bearish regime.

Take-Aways