Value vs Growth Update
- Posted by DynamicHedge
- on February 23rd, 2012
Value driven bull conditions tend to be low volatility and have staying power. Growth driven bull conditions tend to be more volatile and come at the end of the run. Value destroying bear conditions tend to be relentless, whereas growth destroying bear conditions are violent and signal the crescendo of the move lower. Several other similar indexes already given a nod to the value side. We’ll see how this one plays out.
Value has outperformed since being deeply oversold relative to growth at the September lows. True to form, the accompanying rally has proved to be a low-volatility, dependable grind higher. The tables have now turned and value is just shy of being relatively overbought. On a longer time frame, value has a long way to go before getting back to an equilibrium level. This would bode well for equity markets and the bull case. In the short-term, the value outperformance should correct. This means that the market can pull back or growth stocks can run even higher (!). If smart money starts to distribute and new money comes in with a greater risk appetite this could increase volatility and start a topping/blowoff process. I still strongly feel that this market will get bought on any meaningful pullback and should be played accordingly.
I know lower quality names seem like they’ve been on a tear lately, so how can I say that value is outperforming? The indices I’m using to measure value and growth are based on the strict calculations that Standard and Poors uses to populate their style indices. This is not necessarily the same definition growth/value investors assign when describing their methodology, but I feel it’s a more objective measure.
As a side note: we’re about four days shy of the 2010 run higher.
Disclaimer: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please click here for a full disclaimer.
DynamicHedge is an equities, futures and derivatives trader based on the West Coast. He runs a long/short opportunistic relative-value strategy within a proprietary trading group. More
- April is very bullish in a weird way
- Representativeness Bias: Easy Classifications
- Confirmation bias: A dependable filter of objective information
- Conservatism Bias: How to know what new information to focus on
- Sentiment Flip
- Pardon the interruption
- Wait for the market to flex
- How SPY typically trades after a gap up/down on NFP report
- Ebay Monster Gaps
- Ghosts of Death Cross Past