Small Caps
on the Radar

by | Feb 18, 2022

Key Points

  • Copper/Gold Ratio Fades, Remains in the Range
  • Lumber/Gold Trades into Resistance with a Bearish Divergence
  • Discretionary/Staples Ratio Has Bearish Momentum
  • Small Caps Test Important Resistance vs. Large Caps
  • Odds Favor Downside for Growth vs. Value

Key Themes and Relationships

High Beta vs Low Volatility

The High Beta to Low Volatility ratio pulled back below the 200-day moving average while remaining above the 50-day moving average. Thus far, the 2022 rally has not been able to build much momentum, as the 14-day RSI remains below 60, the upper bound of a bearish regime. It appears that more time is needed for a clear trend to develop.

Consumer Discretionary vs Consumer Staples (Equal Weight)

The Discretionary vs. Staples ratio continues to stall below the declining 50 and 200-day moving averages. The 14-day RSI is also rolling over and remains in a bearish regime. The bears remain in control of the trend until the moving averages can be reclaimed.

Lumber vs Gold

The Lumber/Gold Ratio remains above the 50 and 200-day moving averages, but the price continues to consolidate after a strong move to the upside. The development that we are watching now is that the ratio has traded into resistance while the 14-day RSI has made a lower high. This is a sign that upside momentum may be waning. A break of the 50-day moving average would set the stage for a test of the 200-day moving average.

Copper vs Gold

The Cooper/Gold ratio refuses to build traction in either direction. After showing signs of life last week, the bulls have retreated this week as the ratio moved below the moving averages. Once again, the trends have been and remain neutral, confirmed by an RSI sitting in the middle of the range.

Small vs Large

In our Small Cap Weekly note, we pointed out that there were subtle signs of life for the group. The Small Cap / Large Cap ratio has moved above the 50-day moving average to attack short-term resistance. Breaking that level and the 200-day moving average would confirm the bullish RSI divergence that we have been highlighting for the past two weeks. We are watching closely.

Growth vs Value

The Large Cap Growth vs. Value theme remains below the 50 and 200-day moving averages, keeping the bears in control of the ratio’s trend. The 14-day RSI is in a bearish regime, increasing the odds that the 2021 lows will be tested.

Take-Aways

Generally speaking, the message of the market remains murky based on the themes that we cover here. We do want to highlight the potential for a change of trend that is playing out in the Small Cap / Large Cap ratio, which is in the process of testing a key resistance 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.