📉 Stoch Markets: Is the worst really over? 🚀⁉️

2023年2月23日

📝 I will try to analyze the market as a whole, with reference to the Russell 3000 index, which is broader than the S&P 500.
(Russell 3000 is a capitalization-weighted stock market index that seeks to be a benchmark of the entire U.S. stock market. It measures the performance of the 3,000 largest publicly held companies incorporated in America as measured by total market capitalization, and represents approximately 97% of the American public equity market).

📈 On the top chart we have the Russell 3000.

📉 On the bottom chart, we have the Russell 2000 Growth divided by the Russell 2000 Value.
(The Russell 2000 Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index).

The intention here is to see how the companies classified in the 'Growth Investing' category are performing, using the 'Value Investing' companies as a parameter.

🤔 As a rule, it is to be expected that when traders and investors are more prone to risk, they invest more money in 'growth investing' companies than in 'value investing' companies.

1) Analyzing divergences

1.1) 2006-2008


In the period from 2006 to 2008 we had a divergence: the Russell 3000 had lower funds, while the Growth companies had higher funds. The apex was found precisely in the blue diagonal channel, on 12/30/2008. Note that Russell's bottom was only found on 03/10/2009, 3 months later. There is a clear anticipation in the contribution of 'Growth' companies.

1.2) 2014-2016

Russell tests the support of the green line several times, the last one being on 02/11/2016.
Meanwhile, Growth companies remain on the rise, however reaching the blue diagonal channel again on 02/02/2017, 1 year later.
In this case there was an outflow of 'Growth' companies, at least until reaching the blue diagonal channel. After that the increase continues.

1.3) 2018-2020

In this period we have a classic book divergence.
The Russell peaks downwards on 21/12/2018, and later on 23/03/2020, featuring lower bottoms.
Meanwhile, 'Growth' companies continue to 'respect' the green close with ever higher funds, reaching a low peak on the same date.

1.4) 2022-?

Considering the bad macro-economic scenario, with the high cost of money and inflation, it would be surprising that the 'Growth' companies had a better performance than the 'Value' ones. Despite this pessimistic bias, if this indicator breaks above this green diagonal line and stays there, I will reconsider this opinion. If not, I think it is more likely that it will hit the blue diagonal channel again to form the final divergence.

🟢 For comparison purposes, considering a more global aspect and not just the small companies of the Russell 2000, the same analysis could be done on the ratio between the RAG and RAV indices (Russel 3000 Growth/Russel 3000 Value):

2006-2008


2014-2016


2018-2020


2022-?


🔵 What's important to note is that these key moments happened in December and March.