Not in the Mood
to Take Risk

by | Apr 8, 2022

Key Points

  • High Beta/Low Volatility Breaks Support
  • Discretionary/Staples Continues Lower
  • Lumber/Gold Breaks Below the 200-Day Moving Average
  • Growth/Value Has a Decision to Make
  • Small Caps/Large Caps Remain Under Pressure

Key Themes and Relationships

High Beta vs Low Volatility

The High Beta to Low Volatility Ratio is in the process of breaking support once again as it trades below the declining 50 and 200-day moving averages. The 14-day RSI is holding in a bearish regime after being unable to break above 60 during the recent rally attempt.

High Beta / Low Volatility chart for March 25th research.

Consumer Discretionary vs Consumer Staples (Equal Weight)

The Discretionary/Staples ratio continued to move lower this week and is now threatening the March low. The ratio is below the declining 50 and 200-day moving averages, while the 14-day RSI sits in a bearish regime.

Discretionary / Staples (EW) chart for March 25th research.

Lumber vs Gold

The Lumber/Gold ratio is under pressure for a fourth consecutive week, moving below the 200-day moving average after failing to hold above the 50-day moving average. The 14-day RSI is now oversold for the first time since November, lending momentum confirmation to the bearish price action.

Lumber / Gold chart for March 25th research.

Copper vs Gold

The Copper/Gold ratio continues to trade in the consolidation that has been in place for 13 months, oscillating around the pinched 50 and 200-day moving averages. The 14-day RSI confirms the neutral price action as it trades firmly in the middle of the range. This is arguably one of the most frustrating trends in the market.

Copper / Gold chart for March 25th research.

Small vs Large

The ratio is Small Caps to Large Caps heads lower for a third consecutive week after being rejected at the declining 200-day moving average. The ratio has now undercut the 50-day moving average, which is also moving to the downside. We had been highlighting the need for this ratio to break above the October/November peaks to make a stronger case for Small Caps; that development never played out. The 14-day RSI is near oversold levels as it maintains a position in a bearish regime.

Small Caps / Large Caps chart for March 25th research.

Growth vs Value

The Large Cap Growth vs. Value theme is in the process of breaking below the 50-day moving average and below the 200-day moving average as it continues to trade in a sloppy consolidation. The 14-day RSI is heading lower after failing to break from a bearish regime on the recent rally attempt.

Growth vs Value (Large Cap) chart for March 25th research.

Take-Aways

Last week, we made the case that more time was needed before we could decisively claim that investors were shifting to a risk-on stance. This week provides a strong rationale for waiting for the confirmation. Many of the themes that we track continue to point to a market where investors are unwilling to take on excess risk. This dynamic is confirmed by our sector work which points to leadership on the part of defensive groups.

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.