By Adam Koós, CMT, CFP®, CEPA

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This week, the stock market is getting a physical by the financial surgeon (yours truly), and if you missed yesterday’s installment CLICK HERE for Monday’s issue of Investopedia’s Chart Advisor.

Today, we’re diving deeper, looking for evidence that tells us who’s right and who’s wrong – the bulls or the bears.

All three of today’s charts are “Relative Strength” charts (or RS for short).  So, as you go through each of the charts below, understand three things:

1. These are not price charts for any one investment,
2. They are charts that compare the strength of two investments (or sectors of the market) to one another,
3. If we’re comparing XYZ to ABC… if the chart is trending up, then XYZ is the stronger of the two investments – and if the chart is trending down, ABC is exhibiting higher RS.

Lastly, I like to use a moving average (i.e., a trendline over a period of days or weeks) to draw a line in the sand to help determine where a trend in RS switches from one “winner” the other.

Good so far?  If not, shoot me an email and I’d be happy to explain further…

Meanwhile, our first chart is a comparison between Technology and Utilities.  The reason we compare these two sectors is because tech has historically been widely considered to be a “risk-on,” offensive sector, while the utilities sectors is widely known as a defensive sector.

As you can see in the chart below, tech struggled vs. utilities between the beginning of 2024 and spring of 2025.  Since then, however, technology has been trending stronger, putting another mark on the wall in favor of the bulls and “offense.”

Here we have another RS chart that provides with more evidence regarding whether or not the market is in healthy place for risk-taking.

In the chart below, we’re comparing Consumer Discretionaries to Consumer Staples.  To get a quick understanding of each sector, Investopedia defines each as:

Consumer Discretionary Sector:  Goods and services that are non-essential – things people want, not strictly need.  Think “purchases that consumers undertake only when they have ‘discretionary income’ (i.e., leftover money) after covering their essentials.”

Consumer Staples Sector:  Essential goods – things consumers need, regardless of economic conditions.  Think “food & beverages, household goods, hygiene products, and even alcohol and tobacco.”

It should go without saying that, when discretionaries are “winning,” the market is in a “risk-on,” offensive mode… and as you can see below, now only have they been winning, but this past month, the consumer discretionary sector broke out vs. staples… another positive sign for the bull camp.

Last, but certainly not least, let’s compare high beta (higher risk) vs. low volatility (lower risk) to see who’s winning.

“Beta” measures the relative risk of any investment vs. a major market index – typically the S&P500.  So if a stock or ETF has a beta of 1.0, it’s taking just as much risk as the stock market… however, if it has a beta of 1.2, it’s taking 20% more risk than the S&P500.

Now that we understand beta, understanding a “low volatility” investment is in the name, itself.  To be specific, Investopedia defines it as an investment that aims to reduce downside risk (i.e., how far and how fast a price can drop) more than optimizing for upside potential.

Now that we understand high beta and low volatility investments, below is the RS chart comparing the two to one another, and once again, I think we have a clear winner, along with a breakout in favor of high-beta just a coule of months ago.

Don’t get me wrong, RS relationships like this (let alone the markets overall) breathe, ebb, and flow.  If every chart simply went “up and to the right,” this wouldn’t be difficult at all – not to mention, our potential for making money in stocks wouldn’t be nearly as fruitful!

Point being, we can always see a pullback or reversal in these charts and relative relationships… but if you research RS studies of late – or those going back decades – you’ll learn a few things tend to ring true over time:

• Momentum tends to persist over time,
• Strength begets (more) strength, and
• Investments out-performing over the past 6-12 months tend to continue out-performing over the next 6-12 months.

So, even if offensive sectors seem “extended” or “long-in-the-tooth” in the short-term, you shouldn’t turn a blind eye to these inter-market relationships “until prices come down.”

I’ll end today’s installment of Investopedia’s Chart Advisor with a quote:

“Big bull markets always find a way to keep you frightened and OUT.  Big bull markets are devils with no conscience.  To get in, you have to ‘close your eyes, and just do it.’  Not easy, but in this business, nothing is easy except losing money.”

                                                                                                                                         ~ Richard Russell

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