One of the indicators favored by Baseline Analytics is the Growth vs. Value Ratio. This is measured by taking the Russell 2000 Growth Index (RUO) divided by the Russell 2000 Value Index (RUJ). To measure trend, we plot this ratio against its 50-day exponential moving average. See the chart below:
As you will note, the Growth/Value Ratio, denoted by the solid blue line,
tends to outperform during uptrends in the S&P500. Conversely, the
Growth/Value Ratio underperforms during S&P500 downtrends, as value tends to
be favored. Growth stocks tend to outperform during bullish enthusiasm,
presiding during the "risk-on" trade.
In April, you can see that the ratio edged above its moving average (very
slightly) and appears to be forming a respectable basing pattern. A climbing
ratio will be supportive of a continued advance in the market indices. Keep a
watch on this activity.
- Baseline Analytics
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