With the exception of Mid Caps, Growth to Value relationships has broken out of relative resistance levels and bearish momentum regimes to the upside in this past week of trading. While many investors were fooled by the similar price action in these relationships in the first quarter of the year, several developments have taken place that is structurally different. This is all encouraging for the Growth bulls, but they will want to see these breakouts hold over time and RSIs printing overbought readings across the board to have confidence in a bearish to a bullish trend reversal.
below is a preview of the Intermarket analysis report from Research by Potomac.
S&P 500 Growth Relative to S&P 500 Value
The S&P 500 Growth to Value ratio has broken out of a significant relative support zone in this week’s trading session above a now-rising 50-day moving average of the ratio. Additionally, momentum (RSI) has broken out to the upside above the 60 zone, the ceiling that’s defined the downtrend of underperformance year to date. While these developments are encouraging for the Growth bulls, they will want to see the highlighted breakout zone hold and RSI reach an overbought reading to have confidence that a bearish to bullish reversal has been completed.
S&P 400 Growth Relative to S&P 400 Value
The S&P 400 Growth to Value ratio is testing relative resistance at the March and April lows above a now-rising 50-day moving average of the ratio. Note that the 50-day moving average has provided relative resistance since late last year, and this is the first time that this relationship has spent a material amount of time above the indicator since then. RSI has broken out of the 50 zone that has defined the downtrend since late last year, with room for the 70 level. Mid Cap Growth bulls want to see an overbought RSI reading and a breakout in the ratio at these levels.
S&P 600 Growth Relative to S&P 600 Value
The S&P 600 Growth/Value ratio has lifted off of relative support after breaking out of the highlighted zone early in the month above the ratio’s rising 50-day moving average. RSI has reached an overbought reading in this week’s trading session after breaking out of the 55 zone that has characterized the downtrend since the start of the year. For a long-term look at this relationship, see our Small Cap Weekly note from July 20th.
EAFE Growth (EFG) Relative to EAFE Value (EFV)
The EAFE Growth/Value ratio has broken out of long-term relative resistance in this week’s trading session. Note that the ratio’s 50-day moving average has been rising since the beginning of the month, with RSI printing persistent overbought readings after breaking out of the bearish momentum regime to the upside last month. While international factor relationships don’t always lead to domestic factor relationships, it’s been the case so far this year and should be one that investors pay keen attention to for further confirmation of the domestic price action.
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