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Key Points

  • Gold Trades in a Neutral Trend
  • High-Beta and Discretionary are Pointing to Some Risk Appetite
  • Commodity Themes Point to Some Risk Aversion
  • Large Over Small & Growth Over Value Remain in Play
  • Broad Exposure is Likely the Best Strategy Until Clear Leadership Develops

Chart in Focus:

We look at a lot of charts that incorporate Gold, but how is the yellow metal trading on its own? The case can be made that Gold is as mixed as the rest of the charts in today’s note. Price is sitting in line with the 50 and 200-day moving averages which are sitting on top of each other. In other words, the trend is flat in the near-term.

The 14-day RSI is in the middle of the range, confirming the neutral price trend.

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 ratio of the S&P 500 High Beta Index relative to the S&P 500 Low Volatility Index remains above support and the rising 200-day moving average. However, there is resistance just overhead in the form of the declining 50-day moving average and then the top of the consolidation zone. The 14-day RSI recently became oversold for the first time since March 2020 and the subsequent rebound has not been enough to push the indicator out of a bearish regime.

Consumer Discretionary vs. Consumer Staples (Equal Weight)

The ratio of Consumer Discretionary stocks relative to Consumer Staples stocks is in the process of breaking to new highs after trading in a consolidation for much of 2021. The 50-day moving average is turning higher and the 200-day moving average is entering the support zone at the 2018 highs. At the same time, the 14-day RSI is breaking the series of lower highs. We now want to see this indicator reach overbought levels to signal strong momentum behind the price trend.

Copper vs. Gold

The Copper/Gold ratio remains stuck between support and resistance but above the 50-day and 200-day moving averages. The 14-day RSI confirms the consolidation in price as it trades in the middle of the range.

Lumber vs. Gold

The Lumber/Gold ratio is pulling back to test support after a feeble bounce attempt. The declining 50-day moving average has crossed below the flat 200-day moving average. It is interesting to note that on the test of support, the 14-day RSI is positioned to make a higher low. Should support hold, the stage may be set for a rally to take place.

The themes below can show us where investors are allocating capital within the equity market.

Growth vs. Value

The Growth/Value ratio for the S&P 500 is clinging to support at the level that marks the 2021 highs as the 50-day moving average crosses above the 200-day moving average. Above this zone, the September highs are in play. The 14-day RSI of the ratio is in a bullish regime, just below overbought levels.

Small vs Large

The ratio of Small Caps to Large Caps remains below resistance, and the 50-day moving average is on the verge of crossing below the 200-day moving average. Despite this, there are signs that downside momentum may be waning. The 14-day RSI is in the process of making a higher low. Should a near-term rally take hold, it is likely to run into resistance at the moving averages and the breakdown level.

Take-Aways

The view that we shared last week remains in place. The market is extremely calm on the surface but there is a lot of churning underneath. High-Beta and Consumer Discretionary point to increasing risk appetite. However, the commodity themes are expressing the opposite view. Large over Small suggests a more cautious tone, as does Growth outperforming Value. Meanwhile, Gold is not providing a “tell” as it trades in a neutral trend. Despite all of this, the S&P 500 closed at a record high yesterday and we maintain the view that broad exposure to the equity market is likely the best strategy at this time. 

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.