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Key Points

  • Breakout For Health Care Providers & Services
  • High Beta vs. Low Volatility Remains Stuck
  • Copper/Gold and Lumber/Gold Send a Confusing Message
  • Small Caps Hold Below Resistance vs. Large Caps
  • Growth Still Preferred Over Value

Chart in Focus:

The S&P 500 Health Care Providers & Services Index has broken to new, all-time highs after checking back to price-based and moving average support. At the same time, the group is breaking out of a nearly six-month consolidation relative to the S&P 500 as it trades above the 50-day moving average. Odds favor a continuation of outperformance on the part of the group.

The following relationships can help give us a sense of the level of risk appetite on the part of investors.

High Beta vs Low Volatility

The High Beta to Low Volatility ratio remains a sloppy mess as it trades in the consolidation that has been in place for most of 2021. The ratio is below the 50-day moving average and the 200-day moving average. Even if we were to see some upside in the near term, there is a clearly defined resistance level at the former highs. The 14-day RSI is in a bearish regime but has not become oversold since July, indicating that there is a lack of a directional bias. We would lean toward the downside if pressed, but this is a low conviction view.

Discretionary vs Staples

The ratio of Consumer Discretionary stocks relative to Consumer Staples stocks is also a somewhat directionless theme this week, moving below the 50-day moving average but holding above short-term support and the rising 200-day moving average. The 14-day RSI is in the middle of the range and has not been able to reach overbought or oversold levels.

Lumber vs Gold

The Lumber/Gold ratio continues to power to the upside after surpassing the 50 and 200-day moving averages. Momentum confirms the price strength as the 14-day RSI remains in an overbought condition after breaking above the downtrend line from the May peak.

Copper vs Gold

The Copper/Gold ratio joins High Beta vs. Low Volatility and Discretionary vs. Staples as a theme whose message is still searching for direction. The ratio is dancing with the 50 and 200-day moving averages as it trades in the middle of the 2021 range. Thus far, downside support has been holding, but the 14-day RSI is in the middle of the rage, signaling a lack of direction.

Small vs Large

Small Caps remain below broken support relative to Large Caps, below the declining 50 and 200-day moving averages. The 14-day RSI is turning lower as it maintains a new trend of lower highs. Given these dynamics, we find it hard to favor Small Caps as a group.

Growth vs Value

The case can still be made for favoring Growth over Value even as the ratio consolidates. The consolidation is taking place above the breakout level and the rising 50-day and 200-day moving averages. At the same time, the 14-day RSI is holding in a bullish regime after recently becoming overbought.

Take-Aways

Sometimes, the message of the market is very clear. This is not one of those times. Many of the key Intermarket themes that we track remain stuck in their consolidations. The message from the commodity market is conflicted, with the Lumber/Gold ratio powering higher while Copper/Gold spins its wheels. The best strategy is to focus on the clearest trends. Within the S&P 500, Growth over Value still makes sense. Small Caps continue to lag Large Caps. Additionally, there are individual breakouts that could be compelling such as the one in the Health Care Providers & Services Index.

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.