Was That All Value Could Muster?

by JC Parets  -  November 29, 2019

I hope all of you have had time to enjoy this Thanksgiving with family, and even better had the good fortune to avoid unwanted political debates.

Politics aside, I can’t seem to avoid angry reactions just talking about the markets!

People don’t like it when I tell them the Dow is going to 30,000. They tend to get even more worked up when I tell them it’s going to 40,000 after that.

I’m old enough to remember a time when stocks going up was a good thing. In my opinion, there is still a massive amount of underexposure in the equities market.

Today’s installment is an abridged holiday version, but I wanted to share another interesting chart from another great technical analyst, my colleague Tom Bruni. I’ll be back after the holiday.

Tom’s got a chart looking at the MSCI International Value Factor ETF which can tell us something about whether we are in fact seeing a shift from momentum stocks into value stocks. Let’s take a look.

Was That All Value Could Muster?

By Tom Bruni

Here’s the International Developed Value Factor/International Developed ratio (IVLU/EFA). My opinion stays the same. We’ve got massive overhead supply and momentum stocks are diverging.

While the transition to a bullish range for value stocks is a positive, prices still need to form a higher low and work through this overhead supply.

Much like the shift from U.S. stocks to equities in the rest of the world. We think this growth/value shift is going to take more time than most people think.

It will be a slow, grinding process, as opposed to one climactic moment. Most market participants do not have the flexibility to be nimble and act like traders, instead, they need to make sizeable shifts in their allocations over time. That’s why these types of trends persist for as long as they do.

The mean reversion we’ve seen in value over the last few months may be the start of that, but we think it’s too early to call a definitive bottom and are looking to see how this ratio reacts to the meaningful supply just above current levels.