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Relative Value Report 8/28/2020

By Michael Lebowitz | August 28, 2020

The Relative Value Report provides guidance on which sectors, factors, indexes, and bond classes are likely to outperform or underperform its appropriate benchmark as well its relative strength on an absolute basis.

Click on the Users Guide for details on the model’s relative value calculations as well as guidance on how to read the graphs. 

This report is just one of many tools that we use to assess our holdings and decide on potential trades. Just because this report may send a strong buy or sell signal, we may not take any action if it is not affirmed in the other research and models we use.

Commentary

  • Value and lower beta sectors continue to lag the market. Specifically, Utilities, Real estate, and Energy remain oversold.
  • The reflationary sectors maintain overbought status, including Industrials, Transports, and Discretionary.
  • The Sector scatter plot shows a very high correlation (r2) of .8081, denoting the scores and performance are lining up well. The strong correlation provides more confidence in the analysis.
  • Interestingly, most indexes and factors are underperforming the S&P.
  • TLT and LQD are now deeply oversold on a relative basis versus IEI (5-7 year UST).
  • On an absolute basis, everything is overbought except energy and utilities.
  • Staples are the most overbought on an absolute basis, but versus the S&P they remain oversold.
  • The S&P 500 is extremely overbought. In a separate analysis, the 200-week price deviation from the moving average is over 2.5 standard deviations, ranking it in the upper 1% of instances over the last 20 years.
  • AEP, DUK, and ES should be considered as a way to play the oversold status of bonds and utilities on both a relative and absolute basis. All three are at least 2 standard deviations oversold versus XLU.

Graphs (Click on the graphs to expand)

Relative Commentary, Relative Value Report 8/28/2020
Relative Commentary, Relative Value Report 8/28/2020
Relative Commentary, Relative Value Report 8/28/2020

The ETFs used in the model are as follows:

  • Staples XLP
  • Utilities XLU
  • Health Care XLV
  • Real Estate XLRE
  • Materials XLB
  • Industrials XLI
  • Communications XLC
  • Banking XLF
  • Transportation XTN
  • Energy XLE
  • Discretionary XLY
  • S&P 500 SPY
  • Value IVE
  • Growth IVW
  • Small Cap SLY
  • Mid Cap MDY
  • Momentum MTUM
  • Equal Weighted S&P 500 RSP
  • NASDAQ QQQ
  • Dow Jones DIA
  • Emerg. Markets EEM
  • Foreign Markets EFA
  • IG Corp Bonds LQD
  • High Yield Bonds HYG
  • Long Tsy Bonds TLT
  • Med Term Tsy IEI
  • Mortgages MBB
  • Inflation TIP

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Michael Lebowitz, CFA is an Investment Analyst and Portfolio Manager for RIA Advisors. specializing in macroeconomic research, valuations, asset allocation, and risk management. RIA Contributing Editor and Research Director. CFA is an Investment Analyst and Portfolio Manager; Co-founder of 720 Global Research. 

Follow Michael on Twitter or go to 720global.com for more research and analysis.
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2020/08/28
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