With the market selling off into the close today, it’s too early to write my usual “best five sectors” article. The risk of ranking changes is too high. I will make sure that an update will be posted before the markets open on Monday.

Instead, I want to build on this week’s RRG video analysis, where I examined the current strength of commodities and looked at growth, value, and size rotation.

You can see that video here.

Rotation Signals Commodities Springing Back to Life!

The synopsis of that analysis? Large-cap growth stocks are once again the preferred segment of the market. This underscores what’s happening right now — when the market is under pressure, investors usually flock to large-cap stocks. They’re familiar and supposedly less risky.

Cap-weighted vs Equal weight Sectors

Let’s dive deeper by comparing cap-weighted sectors with their equal-weighted counterparts. The two RRGs above illustrate these relationships. At first glance, most tails move in similar directions, though not necessarily in the same areas or quadrants. However, two sectors stand out in terms of divergent behavior: Staples and Financials.

RSPS (equal-weight Staples) has a short, southward-pointing tail inside the improving quadrant. On the other hand, XLP (cap-weighted Staples) is in the lagging quadrant but is picking up steam. For Financials, RSPF (equal-weight) weakens with a negative heading, while XLF (cap-weighted) rotates back towards the leading quadrant.

Cap-weighted vs Equal weight sectors on RRG

To simplify this analysis, I’ve created an RRG directly comparing cap-weighted to equal-weighted ETFs. This makes the trends crystal clear — cap-weighted sectors (dominated by large caps) are mostly moving with positive headings on the left side of the graph, either lagging or improving.

As our inputs are already ratios, we only want to know if that ratio is improving or deteriorating, so we use $one as the benchmark.

The Exceptions

There are a few notable exceptions to this trend:

Consumer Discretionary: A long tail moving from leading into weakening indicating.

Communication Services: Inside the leading quadrant but rolling over.

Technology: Just moved from leading to weakening.

For all three sectors, the dominant position of the larger names (mega caps) is fading and sector breadth is expanding.

These exceptions are particularly interesting because they represent some of the largest sectors in the market.

Large Cap vs Small Cap

Large- vs Small-Cap comparison on RRG

A similar exercise comparing large-cap and small-cap sectors reinforces the overall trend—large caps are generally outperforming. This comparison is even clearer, as these are real market CAO comparisons. In the first comparison above, there is only a weighting difference; all the stocks in these sectors are the same.

In this comparison, the constituents for the sectors are not the same, and they show the true difference between large- and small-cap stocks.

The only sector where small caps are about to take over is in Consumer Discretionary where we see a tail moving from leading towards, and almost crossing over into, weakening.

This aligns with the risk-off sentiment we’re seeing in the broader market.

S&P 500 Chart Analysis

To summarize, let’s examine the SPY chart. After hovering around this level for a few days, the market has tried—and failed—to break above 610 decisively. Friday saw a big down day, closing below the rising support line. This suggests more weakness ahead and underscores the expectation that the S&P 500 needs time to digest within a trading range.

What does that range look like? In my opinion, we’re probably looking at a lower boundary between 580 and 585 and an upper boundary between 610 and 615. The weekly chart still shows an intact uptrend, but it’s clear we need some sideways or corrective price action to digest the gains of the last year (or year and a half, depending on where you anchor the rally’s start).

The Big Picture

All in all, the overall uptrend in the S&P 500 remains intact. However, we need a bit more sideways or corrective price action to digest recent gains. Large caps generally outperform, with some interesting exceptions in mega-cap-dominated sectors.

As always in markets, it’s all relative — and right now, the relative strength favors the big boys.

#StayAlert and have a great weekend. –Julius

The market declined heavily on Friday likely setting up for more downside ahead. We had already begun to notice that mega-cap stocks were beginning to weaken. You can see this on the relative strength line of the SPY versus equal-weight RSP. The relative strength line has been in decline. You’ll notice that when the mega-caps underperform, the market tends to as well.

A look at the Magnificent Seven ETF (MAGS) has been showing a declining trend all year long. We have flat bottoms and a declining tops trendline and that forms a bearish descending triangle. Not only is the chart pattern unfavorable, but so are the indicators. The RSI is now in negative territory and the Price Momentum Oscillator (PMO) has topped beneath its signal line. Stochastics also look terrible as they decline in negative territory below net neutral (50). Relative strength against the SPY is also in decline.

Conclusion: The market is already in decline and it doesn’t appear there will be any help by the mega-caps, particularly the Magnificent Seven which are in decline overall based on MAGS ETF. The market struggles when these big guys don’t perform so we have downside pressure to add to an already weak looking SPY.

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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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Bear Market Rules

There’s been a lot of wild speculation surrounding gold’s bullish run. When you consider a gold investment, you’re likely to think of the more common factors that come into play: inflation, geopolitical uncertainty, and central bank demand. 

But there’s more to the mix now, especially in light of the Trump administration’s latest initiatives and policies. These new developments are spurring speculations that are likely to change the context surrounding how investors view gold. Here are a few key things to think about:

• Around 12.5 million ounces of gold have been imported into the US since last November.
• President Trump announced a possible audit of Fort Knox gold reserves which hasn’t been done since the early 1970s (is it all still there?).
• The US government’s gold valuations remain at an outdated $42.22 an ounce.

The big rumor (keyword: rumor) is that gold is due for a revaluation. Will Trump use the revaluation to boost the value of the Treasury’s holdings, possibly paying down the national debt? Will his administration attempt a partial return to the gold standard? Will the gold be used to counter China’s reported attempt at launching a gold-backed currency to challenge the US dollar? 

Whatever the case may be, a full revaluation is likely to drive bullish sentiment in gold, sending prices higher. If the government sells gold to weaken the dollar, you can expect some short-term price dips before a rebound. And if, by any chance, the Fort Knox audit reveals a shortfall, then that’s bad news for the economy and markets but good news for gold, which will likely send prices skyrocketing.

To get some near-term context, let’s see how gold has been performing over the last year relative to silver, commodities in general, and the S&P 500.  

FIGURE 1. PERFCHARTS OF GOLD, SILVER, COMMODITIES MARKETS, AND THE S&P 500. Gold and silver outperformed both the broader stock and commodities markets over the past year. Chart source: StockCharts.com. For educational purposes.

It turns out that both gold and silver have been outperforming the broader equities and commodities markets.

Let’s take a long-term view of gold. Below is a weekly chart. 

FIGURE 2. WEEKLY CHART OF GOLD FUTURES. There are no signs of topping yet, though its ascent has grown increasingly steep. Chart source: StockCharts.com. For educational purposes.

If volume precedes price, then accumulation, as shown by the Accumulation/Distribution Line (ADL) on the chart, has stayed well ahead of it for a little over three years. Momentum-wise, the Relative Strength Index (RSI) may be registering as “overbought” but the reliability of this indicator in the current environment is anyone’s guess.

Trump’s policy blitz is transforming the political and economic landscape, and it brings certain shocks that can make technical and fundamental analysis more fluid. For now, there are no clear signs of topping, which makes it difficult for anyone interested in finding an entry point. So, let’s zoom in on a daily chart.

FIGURE 3. DAILY CHART OF GOLD. There are still no signs of a top except for the declining buying pressure indicated by the Chaikin Money Flow indicator. Chart source: StockCharts.com. For educational purposes.

There are still no clear signs of near-term weakness, aside from a slight drop in buying pressure indicated by the Chaikin Money Flow (CMF). If gold pulls back, the $2,900 high will likely serve as the first support level. Additional support zones, marked by the magenta lines, align with key swing highs and lows based on the Zig Zag lines.

The final three levels define a broad trading range and coincide with the Volume by Price indicator, highlighting areas of concentrated trading activity where support is most likely to hold. If prices retreat, these levels will be crucial to watch for a potential rebound. So, right now, it’s a matter of waiting for a pullback.

Silver is another asset that has outperformed commodities and the broader market. Might the grey metal present a tradable opportunity? Below is a daily chart to consider.

FIGURE 4. DAILY CHART OF SILVER. The grey metal has room to run but watch your entry point. Chart source: StockCharts.com. For educational purposes.

The RSI indicates that silver has more upside to go before reaching an overbought level. Note the relative performance window that I plotted in a manner that replicates the well-known gold/silver ratio (lower panel) . 

Historically, this ratio has averaged around 65:1 since the 1970s, meaning it typically takes 65 ounces of silver to equal the value of one ounce of gold. Note that every time the ratio reaches the 90-line silver tends to rally. 

Silver is currently rallying, but is another entry point on the horizon? Possibly, but patience is key. This relative performance setup highlights the value of the gold/silver ratio in identifying potential silver entry points, whether for short-term trades or long-term positions.

At the Close

Monitor “spot” $GOLD and $SILVER by adding them to your ChartLists. However, you may be interested in entering trades using their ETF equivalents in GLD and SLV. The prices will differ from their spot price, but the chart patterns that define your entry will be highly correlated, given a few slight adjustments.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.