Key Points
- High Beta vs. Low Volatility Is Stuck in a Holding Pattern
- Discretionary vs. Staples Could See a Higher Low
- Lumber/Gold Tries to Stabilize
- Small Caps Remain Under Pressure, but There Is a Divergence
- Value Over Growth Remains a Theme for Now
Key Themes and Relationships
High Beta vs Low Volatility
The High Beta to Low Volatility ratio remains trapped between price-based support and declining 50 and 200-day moving averages. As this grudge match continues, we are content to watch it play out without having a high conviction view. If pressed, the fact that the RSI is in a bearish regime, we would be inclined to favor a downside break. A move above the moving averages would negate this view.
Consumer Discretionary vs Consumer Staples (Equal Weight)
Last week we highlighted the fact that the Discretionary vs. Staples ratio did not break down further in the face of equity weakness. This week we note that there is potential for the first higher low since the ratio topped in November. At the same time, the 14-day RSI has left oversold conditions. This is not an “all clear” by any means, simply a step in the right direction.
Lumber vs Gold
The Lumber/Gold ratio is trying to stabilize between the 50 and 200-day moving averages. The 14-day RSI did not become oversold during the recent round of weakness, keeping the benefit of the doubt with higher prices for now.
Copper vs Gold
The Copper/Gold ratio continues to be less exciting than watching paint dry. The ratio is stuck at the moving averages, unable to decide on a direction. Momentum confirms with the RSI in the middle of the range.
Small vs Large
Small Caps remain under pressure relative to Large Caps this week below the declining 50 and 200-day moving averages and broken support (now resistance). Momentum confirms this weakness as the 14-day RSI continues to trade in a bearish regime. We will note that the RSI has made a higher low despite the ratio making a lower low. This could be a sign that downside momentum is waning. Retaking the 50-day moving average would be the next step in the improvement process.
Growth vs Value
This week, the Lage Cap Growth vs. Value theme saw a slight reprieve but remains below the 200-day moving average. The 50-day moving average is moving to the downside but remains above the 200-day moving average for now. The 14-day RSI is in a bearish regime and is in the process of making a lower high. Odds continue to favor a move toward lower support.
Take-Aways
The very subtle signs of life that we noted last week remain in place but have done little to gain much traction. With that in mind, the tilt in the market remains one of less risk vs. more risk. We would welcome a higher low in the Discretionary/Staples ratio while Small Caps take advantage of the bullish divergence vs. Large Caps as signals that investors are becoming more risk-seeking.
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.