From the desk of Tom Bruni @BruniCharting
In this week’s Chart of The Week, we discussed the lackluster rally attempt in international stocks relative to the S&P 500.
We concluded that the trend of underperformance remains firmly intact, which brings us to this week’s mystery chart reveal.
Let’s take a look.
Here’s the International Developed Value Factor/International Developed ratio (IVLU/EFA) that most of you were planning to sell without knowing what it was. My opinion stays the same. We’ve got massive overhead supply and momentum is diverging.
While the transition to a bullish range is a positive, prices still need to form a higher low and work through this overhead supply.
Click on chart to enlarge view.
Much like the shift from US stocks to international, we think this growth/value shift is going to take more time than most people think. It will be a slow, grinding process, as opposed to a climactic point in time. Most market participants do not have the flexibility to be nimble and act like traders, instead, they need to make sizeable shifts in their allocations over time…that’s why these types of trends persist for as long as they do.
The mean reversion we’ve seen in Value over the last few months may be the start of that, but we think it’s too early to call a definitive bottom and are looking to see how this ratio reacts to the meaningful supply just above current levels.
Thanks for reading and please let us know if you have any questions!