Key Points

  • A Key Test for the Transportation Index Looms
  • Equity Themes Turn Slightly Risk-Off but Remain Above Support
  • Intermarket Themes (Commodities) are Strong but Could Need a Pause
  • Value over Growth Remains a Strong Trend
  • Small Caps vs. Large Caps are at an Inflection Point…Still

Chart in Focus:

Relative strength in Transports has been one of the key drivers to our bullish stance on equities. The S&P 500 Transportation Index remains in an absolute uptrend, above the rising 50-day moving average, and traded at a record high last Friday. On a relative basis, the index has broken from a near-term consolidation, after holding the 50-day moving average, and will now test the 2017 – 2019 consolidation zone. A break to new relative highs would be a signal that the bullish equity trend is likely to persist.

Key Themes and Relationships

We update our views on the key relationships that we track across the market to get a sense of investor’s willingness to take on risk. We also highlight the trends playing out in major factors such as Growth, Value, Large Cap, and Small Cap.

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 in a consolidation that has been in place since the March high. The ratio is oscillating around the 50-day moving average, which has begun to turn down as selling pressure early this week created a risk-off tone to trading. While still well above the rising 200-day moving average and technically in a long-term uptrend, we note that the RSI has shifted to the middle of the range. This could be a sign that momentum is waning in the near-term. This shift would be confirmed by a break of near-term support.

Consumer Discretionary vs Consumer Staples (Equal Weight)

The ratio of Consumer Discretionary stocks relative to the Consumer Staples stocks continues to pull back from the highs that were reached two weeks ago. We note that those highs were not confirmed by momentum, as the RSI has been making a series of lower highs. The ratio has broken below the 50-day moving average, bringing support at the 2018 highs into play. The longer-term trend remains to the upside, with the ratio trading above the rising 200-day moving average. A break of support would likely lead to a test of this measure of long-term trend.

*We use the equal weight indexes to account for AMZN’s large weight in the Discretionary sector.

Copper vs Gold

The Copper/Gold Ratio continues to test the resistance zone that dates to 2013. At the same time, we note that the 10-year yield is beginning to turn lower from resistance as well. Over rolling 13-week periods, the correlation between the Copper/Gold ratio and the 10-Year Yield tends to be positive. Should the ratio fail to break above the resistance zone, the case can be made that yields will move lower, signaling a more risk-averse stance on the part of investors.

Lumber vs Gold

The ratio of Lumber relative to Gold remains one of the more impressive charts that we have seen. However, the case can be made that the ratio is extended to the upside, as the 200-period Z-score was recently above three. Past instances of a Z-score above three have led to a pause or a consolidation in the ratio.

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

Growth vs Value

The relationship between Growth stocks and Value stocks continues to trend in favor of Value, with the ratio moving further below the declining 50 and 200-day moving averages. The RSI of the ratio recently traded to an oversold level and remains in a bearish regime, providing a momentum confirmation to the price trend.

Small vs Large

The Small Cap vs Large Cap debate continues to play out with an edge going to the Large Caps in the near-term, as the 50-day moving average of the ratio has turned lower. A break of the support zone that is currently being tested would open the door to a test of the rising 200-day moving average. The 14-day RSI has not become oversold during the recent pullback in price, but it may be shifting toward a bearish regime, which would be confirmed with a break of support.


Equity-based themes (High-Beta vs. Low Volatility & Discretionary vs. Staples) have taken a slight turn toward risk aversion as stocks have come under pressure this week. At the same time, intermarket themes (Copper vs. Gold & Lumber vs. Gold) remain risk-on, but we note that both are at levels which would justify a pause. We are mindful of these short-term dynamics while noting that longer-term trends continue to favor a risk-on stance.

From a positioning standpoint, the trend in Growth vs. Value continues to favor Value. Small Caps vs Large Caps remain at an inflection point.

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.