Take-Aways:
After the S&P 500 came to within 14 points of the 3,900 level that we have been highlighting, key themes and relationships have become somewhat mixed. Commodity-based ratios are holding up, but the breakdown in Semiconductors is a concern. Investors may be best served by focusing on factors that are leading. We continue to see Value leading Growth while there is scope for Small Caps to break out vs. Large Caps.
Key Themes and Relationships
Semiconductors vs. S&P 500
Semiconductors remain below broken support relative to the S&P 500 and remain below the declining 50 and 200-day moving averages.
The 14-day RSI is holding in a bearish regime, supporting the downtrend for the ratio.
High Beta vs. Low Volatility
The High Beta/Low Volatility ratio remains stuck between support and resistance as it trades below the declining 50 and 200-day moving averages. We still need to see the 200-day moving average broken to the upside to have confidence that risk appetite is returning to the market.
The 14-day RSI remains in a bearish regime, but there have been subtle improvements.
Consumer Discretionary vs Consumer Staples (Equal Weight)
The Discretionary/Staples ratio remains below 50-day moving average while holding below the 200-day moving average. There is price-based resistance at the pre-COVID levels that must be overcome before we can claim that the trend has turned in favor of risk-on.
The 14-day RSI is holding in a bearish regime but has not become oversold since June. This is a sign that downside momentum may be waning as a base is forming in price.
Growth vs Value (Large Cap)
The Growth/Value ratio remains below the 50 and 200-day moving averages and has accelerated to the downside this week. Recall last week we noted that there was room to the May lows for the ratio. Growth bulls need to see a move above the moving averages to have more confidence in sustained leadership.
The 14-day RSI is in a bearish regime and has become oversold, confirming the weak trend for the ratio.
Small Caps vs Large Caps
The Small Cap/Large Cap ratio has broken above a short-term resistance level but must still contend with the peaks from October/November 2021. Breaking above this level would put the Small Caps in a strong leadership position.
The 14-day RSI has broken a short-term downtrend to move toward an overbought level after failing to become oversold. A shift in momentum to a bullish regime could be a sign that Small Caps are going to begin to outperform.
High Yield vs Treasuries
The High Yield to Treasuries ratio continues to trade between support and resistance. There has been a continued improvement over the past week as the ratio holds above the 50-day moving average. Taking out the 200-day moving average would be another positive for bulls.
The trend here remains neutral, confirmed by the 14-day RSI trading in the middle of the range.
Lumber vs Gold
The Lumber/Gold ratio continues to stabilize near support and the 50-day moving average. The ratio remains below the declining 200-day moving average, which bulls want to see overcome to make a more compelling case.
The 14-day RSI is fading after failing to become overbought. It is more likely time is needed for a base to build.
Copper vs Gold
The Copper/Gold ratio continues to trade in a neutral position between support and resistance and now between the moving averages. The trend is confirmed by the RSI sitting in the middle of the range. However, there have been small improvements over the past two weeks.
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