Key Points

  • Diversified Financial Services Look Compelling
  • High Beta vs. Low Volatility Nears Key Support
  • Discretionary vs. Staples Breaks Down
  • Small Caps Weaken Further vs. Large Caps
  • Growth Still Preferred Over Value in Large Caps, but a Key Test Looms

Chart in Focus:

While the waters under the market’s surface remain rough, there are still pockets of calm to be found. The S&P 500 Diversified Financial Services Index has broken above resistance to trade at a record high; above the rising 50-day moving average. Price-based support is now clearly defined at the 167 level, above that point, odds favor a continuation to the upside. The relative trend has also turned higher to break above the 50-day moving average and is on the verge of a breakout.

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

After failing to break out, the High Beta to Low Volatility ratio is playing to the low conviction view of further downside that we highlighted in this note last week. The ratio lost the 200-day moving average and is below the declining 50-day moving average. The 14-day RSI has moved into an oversold position, indicating that the bearish trend has a momentum confirmation. Technically, the ratio remains in a consolidation, but a break of support will point to further risk-off positioning on the part of investors.

Consumer Discretionary vs Consumer Staples (Equal Weight) 

The ratio of Consumer Discretionary stocks relative to Consumer Staples stocks has quickly sliced below the 50, and 200-day moving averages as the defensive Staples have been exhibiting strong performance over the past two weeks. There is still downside before an important support level is reached. The 14-day RSI is now oversold, indicating that the current move lower is supported by momentum.

Lumber vs Gold

The Lumber/Gold ratio was stronger again this week, seeming content to defy the message of the other themes that we track, which are pointing to risk-off positioning in the market. The 50-day moving average has crossed above the 200-day moving average, and both should now 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 now over 80, near the point where counter-trend declines have begun in the past.

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 below the flat 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 have extended further below broken support relative to Large Caps, trading below the declining 50 and 200-day moving averages. The 14-day RSI remains in a downtrend and is on the cusp of entering oversold territory after making another lower high. 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, that view is now being put to the test as the ratio has moved down to support and the 50-day moving average. A break below these levels will negate our view in the near term and put the 200-day moving average into play as the next key support level. Thus far, the 14-day RSI is holding in a bullish regime, but the low end of that range is now being tested.


While last week we noted that the market’s message was not very clear, the waters have become less murky this week. The case can be made that investors have shifted to more of a risk-off stance despite the S&P 500 trading near record levels. Key themes and relationships have begun to break to the downside, the most notable being Discretionary vs. Staples and Small vs. Large.

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.