My Risk-On/Risk-Off ratio has reached a 22-month low, dropping below a key level that acted as resistance in 2021/22, which transformed into support from 2023 to the present.
Here’s the chart:
Let's break down what the chart shows:
The black line is my Risk-On/Risk-Off ratio.
The Risk-On components consist of Copper (HG1), High Yield Bonds (JNK), Aussie Dollar (AUDUSD), Semiconductors (SOXX/SPY) & High Beta (SPHB/SPY).
The Risk-Off components consist of Gold (GC1), US Treasury Bonds (TLT), Yen (JPYUSD), Utilities (XLU/SPY) & Staples (XLP/SPY).
If this ratio rises, the numerator (risk-on) is outperforming the denominator (risk-off); if it is falling, the denominator (risk-off) is outperforming the numerator (risk-on).
The Takeaway: The message right now continues to be… we are in a Risk-Off environment.
This looks to be a pivotal moment for the US stock market. With this key level now broken, it reinforces the weak market conditions I’ve been discussing in my daily notes over the past few months.
This weakness we are seeing in the ratio is due to the Risk-Off index, which is ripping higher after breaking out from a 5-year downtrend line.
The evidence suggests that risk is outweighing opportunity. It seems wise to adopt an even more cautious approach as we anticipate potential further weakness in the market ahead.
Grant Hawkridge | Chief Aussie Operator, All Star Charts
PS: JC is hosting his monthly conference call today at 8pm ET. Register now.
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