Key Points

  • Dow Theory Non-Confirmation Remains in Place
  • Key Themes Hold Trend After a Four-Day Decline in the S&P 500
  • High-Beta vs. Low-Volatility at a Decision Point
  • Lumber/Gold Ratio Still Holding Support
  • One Last Hurdle for the Growth/Value Ratio

Chart in Focus:

The charts below highlight a lot of indecision as it relates to risk appetite in the market. Perhaps that indecision can best be seen in one chart. The Dow Jones Industrial Average (top) has only seen a marginal pullback from record levels that were reached in August. However, the Dow Jones Transportation Average has been making lower highs and lower lows since its peak in May. This leaves a Dow Theory non-confirmation in play, as the Transports failed to confirm the August high for the Industrials, a sign of indecision on the part of investors.  

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 ratio of the S&P 500 High Beta Index relative to the S&P 500 Low Volatility Index is nearing a decision point, as it trades at the apex of the converging 50 and 200-day moving averages. The 14-day RSI continues to make higher lows but remains in the middle of the range, confirming the consolidation in price. It is interesting to note that this ratio has not broken down despite a four-day losing streak for the S&P 500. A move to the upside would signal an increased willingness on the part of investors to take on risk.

Consumer Discretionary vs Consumer Staples (Equal Weight)

The ratio of Consumer Discretionary stocks relative to Consumer Staples stocks remains above the rising 50 and 200-day moving averages and support at the 2018 highs. The 14-day RSI has made another lower high as it trades in the middle of the range, a divergence that would be confirmed with a break below the moving averages. A resolution to the upside would be a sign of increased risk appetite in the market.

Copper vs Gold

The Copper/Gold ratio has not moved much over the past week. The ratio is stuck between price-based support and resistance, as well as the 50 and 200-day moving averages. The 14-day RSI is in the middle of the range but has been making lower highs since March. However, this indicator also has not become oversold during the consolidation in price. Momentum remains neutral.

Lumber vs Gold

The Lumber/Gold ratio continues to hold price-based support as it trades below the 50 and 200-day moving averages. The 14-day RSI is in the middle of the range after making a series of higher lows. Cleary downside momentum has been waning, a move above the 50-day moving average and the interim, July peaks, would be a positive development from a risk-seeking perspective.

Small vs Large

The ratio of Small Caps to Large Caps has moved lower this week after staging a rebound in the prior two weeks. The ratio remains below the 50 and 200-day moving averages with the downtrend from the March high still in place. The 14-day RSI has been making higher lows of late, a sign that downside momentum is waning. However, we need to see a break of the moving averages to have conviction that Small Caps are regaining the leadership position that they held from September 2020 – March 2021.

Growth vs Large

The Growth/Value ratio for the S&P 500 has taken out another near-term resistance level on the road to regaining the highs that were reached over a year ago. The ratio is above the 50 and 200-day moving averages and the 14-day RSI is in a bullish regime, holding above the broken downtrend line. Above the short-term breakout levels, the odds favor a continuation of leadership on the past of Growth over Value.


Last week we wondered if the end of the summer doldrums would bring about changes in the trends that we highlight here. Thus far, the answer is no. From a risk perspective, the fact that these trends did not breakdown in the face of a four-day decline for the S&P 500 is encouraging. However, we are hard-pressed to find a clear message under the market’s surface and we continue to see a fair amount of indecision. The best strategy remains one of broad exposure to the equity market’s prevailing uptrend.

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.