Low volatility continues to outperform the broader averages both domestically and internationally, and the historically negative correlations of these relationships with the major indexes remain a major obstacle for the equity bulls. While the S&P 500 and Emerging Markets Low Volatility relationships are approaching major resistance zones, the International Developed Low Volatility ratio has already broken out to the upside in this week’s trading and could be the “tell” for a continued lack of risk appetite within equities globally.
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S&P 500 Low Volatility Relative to S&P 500
The S&P 500 Low Vol Ratio remains in an uptrend above the rising 50 and 200-day moving averages of the ratio. Note that the 50-day moving average has provided relative support for this relationship since the uptrend began in Q4 of last year. While the trend has been strong, the further price action from the highlighted relative resistance zone is key. The RSI remains in a bullish regime which has defined the uptrend. The rolling quarterly correlation of the S&P 500 Low Volatility ratio with the S&P 500 index remains persistently negative, signifying a strong historical inverse relationship.
International Developed Low Vol (IDLV) Relative to International Developed (IDEV)
The International Low Volatility ratio has broken out of long-term relative resistance at the highlighted zone this week, above the rising 50 and 200-day moving averages. Note that this relationship began to change trend several weeks before the S&P 500 Low Volatility ratio and could be a “tell” that the domestic ratio is set up for a breakout. The RSI remained in a bullish regime after a brief breakdown early last month. The rolling quarterly correlation of the ratio to International Developed stocks (IDEV) continues to print persistent negative values, signifying the historically high inverse relationship.
Emerging Markets Minimum Volatility (EEMV) Relative to Emerging Markets (EEM)
The Emerging Markets Minimum Volatility ratio has recaptured the 50-day moving average to the upside early this month above a rising 200-day moving average as the relationship heads toward the summer 2019 highs. The RSI is back in a bullish regime after a brief breakdown early last month, which led to the downside price action in the ratio. The rolling quarterly correlation of the ratio with Emerging Markets is hovering around the -0.5 zone but continues to be persistently negative, indicating a historically strong inverse relationship. Price action from the highlighted relative resistance zone at these levels is key, as a continued strengthening in the ratio could dampen upside moves in the Emerging Markets space.
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