Take-Aways:
The themes that we track to gauge risk appetite in the market remain supportive of our view that there is scope for a countertrend rally in the S&P 500 toward 3,900. The main rationale is that these key ratios have not broken down in a meaningful way over the past two weeks. This view would be negated if the S&P 500 were to fall below 3,500.
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 still in a bearish regime and became oversold this week, confirming the bearish price action.
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. It is interesting to note that this ratio has not made new lows. However, we 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 has moved and remains below the 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 is in the process of breaking price-based support. The door is now open to testing the May low. 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 near oversold levels.
Small Caps vs Large Caps
The Small Cap/Large Cap ratio remains between price-based support and resistance as it trades above the 50 and 200-day moving averages. A move above resistance would be a signal that Small Caps are taking a leadership position in the market.
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 small improvement as the ratio has reclaimed the 50-day moving average below the 200-day moving average. 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 moving toward overbought levels after failing to become oversold on the most recent move lower in price.
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.
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