Relative Value Graphs
- Yesterday’s generals, the FAANG stocks, are leading the way lower. Only two sectors had negative excess returns versus the S&P 500 last week. They were technology giving up 1.39% and healthcare losing 0.22% to the S&P, respectively.
- Value/cyclical stocks outperformed on a relative basis. The energy sector led the way, up 2.3%, while the S&P gave up 3.3%. Among the other relative outperformers were industrials, financials, and transportation. While early, the market is signaling a rotation to a reflationary bias. The third graph below shows our inflationary index has picked up about 7% on the deflationary index over the last few weeks. The rotation is not confirmed, as the bond market’s 5-year implied inflation rate is stable at 2.50%.
- As far as relative scores, the cyclical, inflationary sectors are now to the left side of the graph with the highest relative scores. Oddly missing is the materials sector. It is struggling in part due to China’s slowing growth. China is the world’s largest user of many metals.
- The factor/index scores paint a similar story, with small and mid-caps posting high scores. Both small caps, transportation, energy, and financials, have scores at or above 50%. While overbought, they may have more room to run on a relative basis.
Absolute Value Graphs
- Energy’s outperformance is highlighted in the absolute charts. Despite a poor week in the markets, its absolute score increased to 50%. Like in the relative charts, it is overbought but has room to run higher.
- Healthcare, industrials, materials, and staples stocks are the most oversold. The score on industrials fell despite its relative outperformance versus the market. The sector is down about 2.5% this month, while the S&P is approximately 4% lower.
- All factors/indexes are now in oversold territory. None, however, are oversold enough to warrant buy signals.
- The S&P 500 absolute score is now -40%. As shown in the bottom right graph of the absolute section, it is the most oversold in a year. The market is likely due for a bounce. Whether it’s a temporary bounce or a move back to its highs is up for consideration. The trend is the bull market’s friend, but this sell-off looks different than prior short-lived ones over the last year.
- The fourth table below provides another reason to suspect a bounce of sorts is ahead. 8 of the 12 sectors are extended beyond two standard deviations from their 50 dma. However, they are not nearly as deviated from the more critical 200dma.
The technical value scorecard report is one of many tools we use to manage our portfolios. This report may send a strong buy or sell signal, but we may not take any action if other research and models do not affirm it.
The score is a percentage of the maximum score based on a series of weighted technical indicators for the last 200 trading days. Assets with scores over or under +/-70% are likely to either consolidate or change the trend. When the scatter plot in the sector graphs has an R-squared greater than .60 the signals are more reliable.
The first set of four graphs below are relative value-based, meaning the technical analysis is based on the ratio of the asset to its benchmark. The second set of graphs is computed solely on the price of the asset. At times we present “Sector spaghetti graphs” which compare momentum and our score over time to provide further current and historical indications of strength or weakness. The square at the end of each squiggle is the current reading. The top right corner is the most bullish, while the bottom left corner is the most bearish.
The ETFs used in the model are as follows:
- Staples XLP
- Utilities XLU
- Health Care XLV
- Real Estate XLRE
- Materials XLB
- Industrials XLI
- Communications XLC
- Banking XLF
- Transportation XTN
- Energy XLE
- Discretionary XLY
- S&P 500 SPY
- Value IVE
- Growth IVW
- Small Cap SLY
- Mid Cap MDY
- Momentum MTUM
- Equal Weighted S&P 500 RSP
- NASDAQ QQQ
- Dow Jones DIA
- Emerg. Markets EEM
- Foreign Markets EFA
- IG Corp Bonds LQD
- High Yield Bonds HYG
- Long Tsy Bonds TLT
- Med Term Tsy IEI
- Mortgages MBB
- Inflation TIP
- Inflation Index- XLB, XLE, XLF, and Value (IVE)
- Deflation Index- XLP, XLU, XLK, and Growth (IWE)
Michael Lebowitz, CFA is an Investment Analyst and Portfolio Manager for RIA Advisors. specializing in macroeconomic research, valuations, asset allocation, and risk management. RIA Contributing Editor and Research Director. CFA is an Investment Analyst and Portfolio Manager; Co-founder of 720 Global Research.