Growth vs. Value Is at a Critical Level
After a prolonged sideways period for the past three years, the ratio is pressing against a shelf of former highs from 2020 and 2021. Buyers are working on absorbing all the overhead supply at this well-tested resistance zone.
Which direction the ratio resolves in will give us important information about how we want to position our portfolios in the coming months.
The Nasdaq has a relatively high exposure to technology while the Russell represents a broader market picture. Therefore, this relationship really just boils down to a conversation on growth versus value.
If the ratio breaks out, expect the largest tech stocks like Nvidia, Apple, and Microsoft. to experience an acceleration in their leadership role.
At the same time, QQQ/IWV is at a very logical level to see some mean-reversion. This kind of price action would mean that value-oriented and cyclical areas are outperforming and are where we want to be looking for opportunities.
If you are looking to express a bullish thesis on commodity-related groups into year-end, you want to see this ratio rejected at current levels.
On the other hand, if you are looking to make money off tech stocks, you want to see this ratio break out.
It’s really as simple as that. We should know soon.
We hope you enjoyed this post.
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Alfonso