- High Beta/Low Volatility Squares Off with Important Resistance
- Discretionary/Staples Continues to Build That Base
- The Growth/Value Rebound Has Played Out Nicely, Now is the Next Test
- Copper/Gold Bunces from Support, there is Still Work to Do
- High Yield vs. Treasuries is a “Show Me” Story
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Key Themes and Relationships
High Beta vs Low Volatility
The High Beta/Low Volatility ratio remains in a holding pattern between the 50 and 200-day moving averages, support, and resistance. The rebound with risk assets since June is an encouraging development for equity bulls. A move above resistance would be an added bullish data point should it play out. The 14-day RSI is trying to shift to a bullish regime as it trades near the 60-level, looking for a breakout.
Consumer Discretionary vs Consumer Staples (Equal Weight)
The Discretionary/Staples ratio has rallied from the 50-day moving average, a bullish response to the positive divergence that we highlighted here two weeks ago. The ratio must clear resistance and the declining 200-day moving average for us to claim that the trend is to the upside, but the past two weeks have been a step in that direction. The 14-day RSI is trying to break from a bearish regime.
Growth vs Value (Large Cap)
The Growth/Value ratio has made a solid rebound from the now rising 50-day moving average to bring the declining 200-day moving average into range. Breaking the 200-day would be a signal that growth is regaining control relative to value. The 14-day RSI has been making higher lows of late as it attempts to shift to a bullish regime.
Small Caps vs Large Caps
The Small Cap/Large Cap ratio remains in a consolidation zone as it oscillated around the 50 and 200-day moving averages. We are still looking for a clear break from the zone. A move above the October/November peaks would confirm a bullish trend and greater risk appetite on the part of investors. A break of support would send the opposite message. There remains a slight edge to an upside breakout as the 14-day RSI has held above the 40-level of late.
Lumber vs Gold
The Lumber/Gold ratio is making another run at the declining 50-day moving average, below the 200-day moving average. The ratio is trading near an area of support, but more time is needed for us to be convinced that a durable rally is developing. The 14-day RSI is moving higher from oversold levels but remains in a bearish regime.
Copper vs Gold
The bounce from support for the Copper/Gold ratio continues to play out below the declining 50 and 200-day moving averages. While this is encouraging, there is still a lot of overhead resistance, and the 14-day RSI remains in a bearish regime.
High Yield vs Treasuries
The High Yield to Treasuries ratio has staged a rebound as risk assets have caught a bid since the beginning of July. The ratio is above the 50-day moving average but must now face a strong test at resistance and the declining 200-day moving average. Breaking this level would set the stage for further upside in the ratio and would be a bullish data point for investors. The 14-day RSI is beginning to break from a bearish regime.
The key themes and relationships that we track on a weekly basis all have the same look as many of the equity and fixed income ETFs that we highlight. They have made strong rebounds to move above their 50-day moving averages but still must clear their 200-day moving averages before a stronger bullish case can be made. Our views have become incrementally bullish over the past few weeks as signs point to risk appetite returning to the market. Clearing these 200-day moving averages would be the next step in the development of these bullish views.
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