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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.

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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 / Low Volatility chart for March 25th research.

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.

High Beta / Low Volatility chart for March 25th research.

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.

Discretionary / Staples (EW) chart for March 25th research.

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.

Lumber / Gold chart for March 25th research.

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.

Copper / Gold chart for March 25th research.

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.

Small Caps / Large Caps chart for March 25th research.

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.

Growth vs Value (Large Cap) chart for March 25th research.

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.

Growth vs Value (Large Cap) chart for March 25th research.

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