Relative Strength Ratio Range Risk-On Composite Model Update

The relative ratio components in the relative strength ratio range risk-on composite model have come under pressure in the last few days. The copper to gold ratio rank is the only component that remains above the 75th percentile. Remember, this level controls the composite count. The composite remains with a count of four because the model uses a 10-day lookback period to avoid whipsaw situations where a component falls below the key level for a single day and then reverses higher. I want strong confirmation of a relative ratio trend change. If the composite count falls to 1 or less and the S&P 500 crosses below a user-defined range rank level, the model will issue a risk-off signal as long as the Index is still within 5% of the most recent high.

With risk appetite backing off as measured by the relative ratio components, one has to wonder what message we can extract from the market. Interest rates and the dollar are on the rise, and that will impact the economy and certain groups on a go-forward basis.

As always, I like to use a weight-of-the-evidence approach to manage risk. I will be monitoring several other risk-off models for potential warning signs.

Please see my note from 1/19/21 for more comprehensive details on the relative strength ratio range risk-on composite model. 

Current Chart with Components and Composite Count