We’re back to the age-old question: growth or value?
The S&P 500 Value Index (SPYV) hit an all-time high during Thursday’s trading, while the charts are sending sinister signs that could put the growth-stock rally at risk, says Todd Gordon, founder of TradingAnalysis.com.
In the SPYV ETF, “we’ve seen three main periods of consolidation since the 2009 lows,” Gordon told CNBC’s “Trading Nation” on Thursday.
Those consolidation periods have lasted 86 and 101 weeks, with the most recent still in its 91st week as of Thursday, Gordon said.
“The big question right now is when will this consolidation end?” Gordon said. “Could we move higher in value? Absolutely. So, this is the time where, I think, in the earnings season, we’re starting to look for a breakout.”
Turning to a chart of growth relative to value — that is, the S&P 500 growth index divided by the value index — Gordon said the bear case for growth appears to be taking hold.
“What you can see is we have a very, very nice uptrend, which is growth outperforming value. We’re starting to see this ratio start to sell off,” he said. “A natural pullback would be about that 1.10 level. If you break through 1.05, … that would start to suggest that the uptrend in growth since ’08 is now in trouble.”
That would mean value could start to substantially outperform growth in the coming months. The iShares S&P 500 Value ETF (IVE) has underperformed the iShares S&P 500 Growth ETF (IVW) over the last two years, with the former up just over 10% versus the latter’s nearly 24% gain.
Gordon wanted to play the potential trend turnover with a stock that has caught the eye of both value and growth investors alike: Apple.
“How can you not like Apple here? [It’s] breaking new highs as the rest of the market isn’t,” he said, pointing to a parallel channel on the stock’s chart. “Resistance doesn’t come in at the current angle of approach until $280 in Apple. I’m long Apple in my portfolio. I’m going to try to target that level.”
Apple shares closed at $243.58 on Thursday.
John Petrides, a portfolio manager within the wealth management group at Tocqueville Asset Management, said investors will likely tire themselves out waiting for value to finally overtake growth before buying in.
“From an absolute standpoint, it’s great that value’s reaching an all-time high, but it’s a relative game,” he said in the same “Trading Nation” interview. “Value has underperformed growth for quite some time now. And those investors waiting for this reversion to the mean, it’s been like ‘Waiting for Godot,” a reference to Samuel Beckett’s play about two characters waiting for someone who never arrives.
But valuation will come back into play “at some point” as the market’s earnings-season swings subside, Petrides said.
“It’s only a matter of time with the slowing global economy,” the wealth manager said. “When growth becomes fearful, investors turn their back on that group very aggressively and they sell off in a hurry. They don’t wait for anybody. So now is the time to start rotating your portfolio if you’re overweight growth and start adding to value.”
The SPYV was less than 1% lower at Thursday’s close.
Disclosure: Todd Gordon owns shares of Apple.
