Key Points

  • Incorporating the Lumber/Gold ratio, as a measure of risk appetite, in our weekly work.
  • Key themes and relationships continue to point in the direction of risk seeking rather than risk aversion.
  • The Growth/Value relationship moves lower, fading from key resistance.
  • Small Caps are holding support relative to Large Caps.   

Chart in Focus:

The ratio between Lumber and Gold has come into focus of late, largely due to the dramatic rise in the price of Lumber since November of last year which took the ratio through the breakout level in January of this year. The advance is confirmed by momentum, with the 14-week RSI becoming extremely overbought.

The rationale for following the Lumber/Gold and Copper/Gold (see below) ratios is that they speak to risk appetite in the market. Gold is often turned to in times of uncertainty. When it is being outperformed by commodities that have more industrial uses, it is a signal of investors’ expectations about global growth prospects. If prospects for growth are improving, we would expect to see a higher tolerance for risk in asset markets, especially equities. 

Key Themes and Relationships

We update our view 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 S&P 500 High Beta to S&P 500 Low Volatility is holding the rising 50-day moving average as it trades in a consolidation after making a high in March. The ratio remains well above the rising 200-day moving average. The 14-day RSI is in the middle of the range, confirming the consolidation, but we note that it has not become oversold since the March 2020 lows. This indicates that momentum remains in the direction of the rising trend.

Odds favor this being a consolidation within the context of a larger trend which will ultimately resolve to the upside.

Consumer Discretionary vs Consumer Staples (Equal Weight)

The ratio of Consumer Discretionary stocks to Consumer Staples has pulled back from the highs that were reached last week to test the rising 50-day moving average, while remaining above the rising 200-day moving average. Should weakness persist in the near-term, we look for the area of the 2018 highs to provide support. We do note that last week’s high was not confirmed by momentum, as the 14-day RSI made a lower high. This is a sign that upside momentum may be waning, which would be confirmed with a break of support.

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

Copper vs Gold

The ratio between Copper and Gold continues to test resistance at the peaks that were reached in 2013, 2017, and 2018. While the ratio has made a strong move since bottoming in March of 2020, when we zoom out to this weekly timeframe, we can see that it has not yet broken out.

Over rolling 13-week periods, there tends to be a positive correlation between Copper/Gold and the 10-year yield. Should the Copper/Gold ratio break resistance and continue its path higher, odds would favor yields doing the same.

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

Growth vs Value

The relationship between Growth and Value has turned lower from the inflection point that we highlighted last week. After fading from resistance, the ratio has moved below the declining 50-day moving average, which is trading below a 200-day moving average that is in the process of turning lower. At the same time, the RSI is shifting to a bearish regime, signaling that momentum confirms the trend to the downside.

Small vs Large

The S&P 600 Small Cap Index relative to the S&P 500 continues to test the support level that we have been highlighting. The ratio is below the 50-day moving average which is turning lower. The rising 200-day moving average is the next level of support should near-term weakness persist. The RSI of the ratio may be in the process of shifting to a bearish regime, but it is still too soon to tell.  


Investors remain more risk seeking than risk averse based on the themes highlighted in this note. Importantly, the ratios of Copper to Gold and Lumber to Gold provide an intermarket confirmation of the higher risk appetite on the part of investors.

From a positioning standpoint, Value over Growth is a trend that is likely to persist. In the battle between Small Caps and Large Caps, the trend in favor of Small Caps is being tested as the ratio trades at a key support level.

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.