Key Points
- Small Caps Begin to Show Relative Strength
- Lumber/Gold Breaks Above Resistance
- Discretionary/Staples & Growth/Value Remain Weak
- Copper/Gold Bounces but Stays in the Range
- High Beta vs. Low Volatility Still Seeks Direction
Key Themes and Relationships
High Beta vs Low Volatility
The High Beta to Low Volatility Ratio continues to grind in the range that has been in place for more than a year. The ratio is below the 50 and 200-day moving averages but is holding above price-based support. The 14-day RSI has moved to the middle of the range after making a series of higher lows, putting momentum in a neutral position.
Consumer Discretionary vs Consumer Staples (Equal Weight)
The rebound that we were looking for in the Discretionary/Staples ratio last week has proved elusive thus far. The ratio is below the declining 50 and 200-day moving averages, and the 14-day RSI remains in a bearish regime. The bullish divergence that we highlighted last week remains in play, but the bears are in control of this trend.
Lumber vs Gold
The Lumber/Gold ratio has broken through resistance, above the rising 50 and 200-day moving averages. The 14-day RSI has broken the short-term downtrend and is moving toward an overbought condition. This sets the stage for the ratio to attack the highs from May 2021.
Copper vs Gold
The Copper/Gold ratio has rebounded this week, moving above the flat (and pinched) 50 and 200-day moving averages. This ratio remains in a grudge match between the bulls and the bears, neither of whom have been able to establish directional control in more than a year. The 14-day RSI sits in the middle of the range, confirming the neutral price trend.
Small vs Large
Small Caps continue to surprise relative to Large Caps. This is especially telling in the face of geopolitical risk that has gripped the market over the past week. The ratio has moved through a near-term price-based resistance level after breaking above the 50-day moving average. The next tests will be the declining 200-day moving average followed by the October/November peaks. Should the ratio break those levels, Small Caps would be in a leadership position. Following the bullish divergence that we highlighted last week, the 14-day RSI is trying to shift to a bullish regime.
Growth vs Value
The Large Cap Growth vs. Value finds itself in a similar position to that Discretionary vs. Staples. The ratio is under pressure below the 50 and 200-day moving averages. The bullish divergence that we highlighted last week is still in play but needs to be confirmed by the ratio trading above the moving averages. Until that time, the bears are in control of the trend.
Take-Aways
The relationships that we track are sending a mixed message at this stage. The move higher in the Lumber/Gold Ratio and the Small Caps vs. Large Caps Ratio point to some increased risk appetite on the part of investors. However, the Discretionary/Staples and Growth/Value ratios send the opposite message. High Beat vs. Low Volatility and Copper/Gold are both stuck in neutral. In our note on Wednesday, we noted the clear support levels for the major averages in the U.S. holding above them keep trends neutral, but a breakdown would signal that the bears have taken the ball.
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