The relationship between value and growth has been under the microscope over the last month. Growth has picked up strength throughout the first three months of the year while value has moved in the opposite direction. Earlier in the year, value still held a substantial lead over growth while growth enjoyed a strong January which led the All Growth Funds group on the Asset Class Group Scores page back near a score of 3.0 for the first time since January 2022. Recently, value lost much of its score lead as the All Value Funds group dropped from an average score reading in the mid-3s to the low-3s. This led to a change in leadership between the All Value Funds and All Growth Funds groups for the first time since January 2022 as growth narrowly took back leadership last week. The two groups are still very close in score to one another, so more separation is needed to confirm the leadership change. However, this is a major shift that will impact asset allocation if it does hold. Over the period the All Value Fund group scored higher than the All Growth Funds group (1/4/2022 – 3/23/2023) the Vanguard Value ETF (VTV) outperformed the Vanguard Growth ETF (VUG) by 13.11%.

Using these two groups to rotate between VTV and VUG has been a strong strategy going back to November 2003. The strategy is simple, if the All Value Funds group scores higher than the All Growth Funds group, then the strategy owns VTV and vice versa. Benchmarked against just holding VTV or VUG, the strategy grew $100 to $618.74 while just holding VTV resulted in an ending value of $300.36 and VUG resulted in an ending value of $513.76. As we can see in the image below, the rotating strategy was able to stick with VUG over the last decade as growth was favored until switching to value last year. This switch led the strategy to separate itself from just owning VUG by a wide margin. While the two groups are still scoring close to each other, leadership changes between value and growth should be taken genuinely.

The broad crypto space took a bit of a breather this week, seeing many of the coins within the Nasdaq Crypto Index (NCI) underperform the market over the last seven days. While the overwhelming technical picture is still positive for many coins within the space, this did lead to just over half of the coins within the NCI returning to columns of O’s on their default PnF chart. While this has yet to translate into sell signals for the majority of these members, those with exposure should keep a close eye on further coordinated moves across the group. While at first glance these synchronized reversals may seem daunting, it is of note that heavyweights Litecoin ($LTC), Bitcoin ($BTC), and Ethereum ($ETH) remain in their own respective columns of X’s and have each posted strings of consecutive buy signals, which is ultimately encouraging for the health of the space. Despite ultimately underperforming the S&P 500 (SPX) over the last week (-.79% vs. -3.63%), Bitcoin caps off an overwhelmingly positive March, posting a near 16% gain in the process of returning to a buy signal against our money market proxy. 

One chart of note this week comes from Bitcoin Cash ($BCH), which has a more concerning chart picture. Despite returning to a buy signal with the rest of its peers throughout 2023’s rally, recent action has led to the formation of a triangle pattern. While it is true that triangle patterns are typically seen as a “continuation” of action (which in this case would be positive with the most recent crypto rally,) triangle patterns have spelled trouble for $BCH before. As seen in the chart below, 2022’s action led to the formation of three different quasi-triangle patterns, all of which ultimately led to further downside participation for the coin. With this in mind, those looking to enter into a position may wait for definitive price action in one way or the other as a sign of market confirmation. 

Each week the analysts at DWA review and comment on all major asset classes in the global markets. Shown below is the summary or snapshot of the primary technical indicators we follow for multiple areas. Should there be changes mid-week we will certainly bring these to your attention via the report.

While the market as defined by the S&P 500 Index SPX is flat this week through Tuesday’s action, value stocks have outperformed growth stocks in the short time. The Vanguard Value ETF VTV has added 94 basis points, while the Vanguard Growth ETF VUG has shed 88 basis points. This is a slight change in the recent performance of value versus growth during March as VTV has lost 3.65% while VUG has added 3.04%. While positive action within the growth space earlier in the year qualified as laggard improvement from technically weak sectors at the time, like Technology and Consumer Discretionary, sustained absolute improvement and recent market volatility has caused relative improvement from these aforementioned growth sectors. The charts below will discuss some of the absolute improvement within growth by looking at the technical picture of VUG and also note where additional improvement from a relative standpoint may be needed in order to see growth further separate itself from value.

On the trend chart of the Vanguard Growth ETF VUG, the fund has maintained a buy signal since November 2022 and a positive trend since February, after a second buy signal. Since then, VUG has pulled back and reversed back into a column of Xs, rallying to form a double top at $245. While broader market indices violated their bullish support lines, VUG was able to maintain above the trendline and the rallied that followed led to positive RS against the S&P 500 Equal Weighted Index SPXEWI. Following action on March 14th, VUG reversed into a column of Xs on the market RS chart against SPXEWI and upon that move, the fund’s score improved above the 4 score threshold for the first time since January 2022. With that pop in score, VUG’s fund score moved above VTV’s fund score for the first time since October 2022.

As noted above, VUG has shown near-term relative improvement versus the S&P 500 Equal Weighted Index SPXEWI. Additionally, the first RS chart to the left shows that growth has shown similar relative improvement in the near-term against value (VTV), leading to a reversal back into Xs. In this case, VUG has been in a column of Xs against VTV since the beginning of February and has shown further relative improvement to the extent that the RS chart is within two boxes of moving back to an RS buy signal. The chart has been on an RS sell signal against VTV for over 12 months after giving the initial RS sell signal in March 2022. While the near-term outperformance has favored growth, investors now look for that outperformance to sustain and see growth move back to a buy signal.

Growth areas of the size and style level of DALI have begun to show improvement, and further outperformance by growth could lead to additional improvement, potentially up the rankings. Those who may seek for a individual RS relationship to keep an eye on the VUG versus VTV relationship may utilize the My Custom RS Charts widget on the Dashboard page to set alerts for future breakouts or reversals.

U.S. Sector Updates

The past week saw no significant technical developments in the Basic Materials, Consumer Cyclical, Healthcare, Financials, Utilities, Energy, or Real Estate Sectors. Those that saw noteworthy movement are included below, in order of their relative strength ranking in the DALI domestic equity sector rankings. Sector designations are based on DALI sector rankings and are as follows: 1 - 3 overweight, 4 - 7 equal-weight, and 8 - 11 underweight.

Technology – Overweight, Improving

The technology sector has seen further improvement over the past week to advance into the 2nd ranked position out of the 11 sectors in our DALI sector breakdown. This garners an Overweight classification for the first time since mid-February 2022. Strength within the sector continues to originate with large-cap names like AAPL and MSFT leading major representatives higher. Semiconductors continue to show long-term strength when compared to most other sectors but have seen a near-term decline in participation. This may present some opportunities to gain exposure at normalized price levels. This could be through a broad semiconductor fund representative like SOXX or an individual name like AVGO, which have each consolidated over the past few weeks.

Industrial- Overweight

The industrial Group fell to third within the DALI Sector rankings this week, but it should be noted the tumble came more so at the hands of emerging strength from now overweight Technology than weakness from the Industrial sector. The SPDR Select Fund for the group maintains a strong 3.82 fund score and recently reversed back into X’s on its default chart. One stock to look towards on reversal into X’s is 5/5’er Howmet Aerospace (HWM).

Consumer Non-Cyclical- Equal Weight

Consumer Staples continue battling with Industrials for the third spot in DALI, this week slipping back to fourth. Small caps remain intra-sector leaders, evidenced via the constructive chart picture for PSCC. Meanwhile, PBJ and FTXG are currently testing positive trend lines that have been in place since April 2020 and 2011, respectively. ADM returned to a buy signal this week and MKC had its 16th-best trading day on record following an earnings beat.

Communication Services- Underweight

The Communication Services sector remains in the 10th position within the DALI rankings but has extended its lead of buy signals over now last-place Real Estate. In line with the more Tech Focused advance, names like Alphabet GOOGL and META META are the main standouts. Google recently returned into a column of X’s on its RS chart against SPXEWI for the first time in nearly a year, and META sits within one box of printing its first buy signal against the equal-weighted index in over 2 years. 

The relative strength landscape for international equities has changed many times over the past year amid shifting geopolitical concerns, varying interest rate decisions, and local news headlines. This has produced notable rotation in our NDW Country Index RS Rankings. Some countries, like Ireland, Italy, and France, have shown consistent improvement on a month-over-month basis to advance from the bottom half of names into the top quartile. Other areas like Israel and Norway spent a prolonged period in favorable territory but now sit near the bottom of the rankings. In fact, Mexico is the only name that has maintained a position in the top quartile of the rankings for each of the past 12 months, having been in the top ten names since February 2022.

This relative strength has also been demonstrated by the iShares MSCI Mexico ETF EWW, which is also one of the highest-ranked funds in our World ETF Matrix. Like our NDW Country Index Matrix rankings, the World ETF Matrix is a premade matrix available on the research platform that simply looks at broad ETF representatives for global equity markets, including the U.S. and other regional representatives. EWW sits in the second-ranked position out of the 46 funds in that matrix (behind Greece GREK), and shows one of the higher X rankings of any country. This gives it the highest “total” rank of any of the names, which combines the count of buy signals and X columns into one aggregated score. While we typically focus on the buy ranking, the total ranking helps demonstrate the consistent nature of Mexico’s relative strength picture.

EWW showed rapid improvement from October 2022 until reaching a new multi-year high at $60 earlier this month. The fund then pulled back to give a sell signal at $55, however, we often see the first sell signal in a strong uptrend act as more of a mean reversion event that can lead to further improvement. This has been partially displayed over the past week, as EWW reversed back up into a column of X's before rising to $59 during intraday action on Wednesday. EWW carries a strong 5.77 fund score that bests the average Latin American fund (2.34) as well as the average non-US equity fund (3.39) and is paired with a positive 1.45 score direction. It is hard to find a more consistently strong area than what Mexico has demonstrated over the past several months, and the recent consolidation offers potential investors a more opportune entry point. Initial support can be seen at $55 with further support seen at $49.50.

US Treasury yields declined over the last week. The US Treasury 10-year Yield Index (TNX) fell to a negative trend for the first time since January of last year. The two-year yield index (US2YR) returned to a sell signal when it broke a triple bottom at 3.63%.

Fed funds futures are now pricing just over a 60% chance that there will be no rate hike at the Fed’s May meeting and a better than 90% chance of at least one 25 bps cut by the end of the year and a better than 60% chance that the target rate will be at least 50 bps lower than its current level.

The two-year/10-year (USYC2Y10) spread has widened significantly since the beginning of March. On the surface, widening of the spread may seem like a positive development – inversion of the two/10 spread is considered to be a recessionary indicator – so widening of the spread (reducing the level of inversion) is the yield curve moving towards a more “normal” state. However, after being inverted for an extended period, the two-10 spread has often widened shortly before the beginning of a recession.

High yield spreads have also increased over the last month. (CBUS10YRSPREAD), which measures the spread between US Treasuries and high yield bonds, has gone from 4.5% in February to 5.5% on its default chart. CBUS10YRSPREAD remains well below levels seen during 2008 and 2020, however, the increasing spread is a sign of a risk-off stance with regards to credit.

The fixed income rankings in the Asset Class Group Scores show strengthening in fixed income. There are now more than 20 groups in the “green zone” – with scores of 3.0 or better, the highest number of fixed income groups above that threshold in quite some time. It is also notable that several of the more risk-on groups– high yield, corporates and preferreds – which are often correlated with equities, sit towards the bottom of the rankings, with preferreds and convertibles occupying the bottom two spots.

Remember, these are technical comments only. Just as you must be aware of fundamental data for the stocks we recommend based on technical criteria in the report, so too must you be aware of important data regarding delivery, market moving government releases, and other factors that may influence commodity pricing. We try to limit our technical comments to the most actively traded contracts in advance of delivery, but some contracts trade actively right up to delivery while others taper off well in advance. Be sure you check your dates before trading these contracts. For questions regarding this section or additional coverage of commodities email will.gibson@nasdaq.com.

Data represented in the table below is through 3/28/2023:

Broad Market Commodities Report

Portfolio View - Commodity Indices

Markets continued to chop over the past week, leaving our technical indicators largely unchanged. 

On the Asset Class Group Score page, we still find Precious Metals atop the Alternatives view followed by MLPs (despite a strongly negative score direction). Precious Metals has been buoyed by recent price strength from gold and silver, and perhaps qualitatively by economic fears/uncertainties.

On the other end of the spectrum, we find real estate with an average group score of just 1.35. Note that many of the underlying funds target REIT exposure. REITs have generally experienced a positive correlation to interest rates over the past 20 years, except during Fed tightening cycles. There are different schools of thought as to why this is the case, but rising rates typically coincide with a growing economy, which also (often) brings rising real asset prices. However, if rates rise too quickly or surpass expectations (like in the current state) and investors’ concerns about a recession overpower, then some may abandon their real estate yield plays for safer income streams. The real estate group is currently trading in heavily oversold territory, evidenced by a % OBOS (overbought/oversold) reading of -101%, so there is elevated potential for a near-term bounce. That said, should this bounce take place, it would be seen as a sell on rally opportunity given the longer-term score rankings.

It's worth mentioning that the US Money Market group carries a score of 2.98, which is just shy of the 3.0 demarcation line and overtaking Agriculture. Agriculture was also recently surpassed by Industrial Metals on our sub-asset class rankings on DALI, further highlighting recent weakness.

With only two groups carrying average fund scores above 4.0 and six with positive score directions, it is fair to say that leadership within the alternative assets space is narrow(ing).

Daily Option Ideas for March 29, 2023