Growth and Value

When the blue line is going up, growth stocks are working. When it is going down value stocks are working.

Re-balance your portfolio when the green line goes above 50 and then goes below it.

Or when the green line goes below -50 and then goes above -30. There is an orange line at -30 to show the transition. The +50 and -50 on the green line are extreme zones indicating a transition. No need to rebalance if the difference between the position weights from the desired weight is less than 1%. This will reduce unnecessary transactions.

Benefits of combining growth and value strategies:
From a quantitative point of view, growth (momentum) and value are negatively correlated. Clifford Asness et al. found value to have a -0.4 correlation with growth (momentum). A correlation of -0.4 means that when growth zigs, value has a tendency to zag. Owing to this lack of correlation, combining growth with value results in diversification benefits. This can reduce both volatility and turnover compared to a pure growth or value portfolio. It is more important to incorporate growth and value strategies rather than seek the exact optimal mix. While growth and value are negatively correlated, during a bear market both portfolios fall.

Standard and Poor Sector Analysis May 2016

Analysis of S&P Sector ETFs. This should show us which sectors are strong and which ones are weak.

Symbol	Name	Short to medium term price analysis
xly	Cyclical	Showing upward strength. Looks O.K.
xlk	Technology	Upward momentun starting. Time to start getting in for medium term timeframe.
xli	Industrial	Not ready with upward momentum. Wait and watch. Do not add new money.
xlb	Material	Loosing some upward strength. Still O.K.. Do not add new money.
xle	Energy	Not ready with upward momentum. Wait and watch. Do not add new money.
xlp	Consumer Staples	Reversed course. Loosing some upward strength. Take money out.
xlv	Health	Loosing some upward strength. Still O.K..
xlu	Utilities	Loosing some upward strength.Take money out.
xlf	Financial	Upward momentum still O.K.

Combining Growth and Value strategies

When the blue line is going up, growth stocks are working. When it is going down value stocks are working.

Re-balance your portfolio when the green line goes above 50 and then goes below it.

Or when the green line goes below -50 and then goes above -30. There is an orange line at -30 to show the transition. The +50 and -50 on the green line are extreme zones indicating a transition. No need to rebalance if the difference between the position weights from the desired weight is less than 1%. This will reduce unnecessary transactions.

From a quantitative point of view, growth (momentum) and value are negatively correlated. Clifford Asness et al. found value to have a -0.4 correlation with growth (momentum). A correlation of -0.4 means that when growth zigs, value has a tendency to zag. Owing to this lack of correlation, combining growth with value results in diversification benefits. This can reduce both volatility and turnover compared to a pure growth or value portfolio. It is more important to incorporate growth and value strategies rather than seek the exact optimal mix. While growth and value are negatively correlated, during a bear market both portfolios fall.

downside pressure on SPY and QQQ in the short term

There is a downside pressure on SPY and QQQ in the short term. This may give us a buying opportunity soon. The price action look more like a counter trend to the medium term uptrend. But as always we have to wait and watch for the right moment to buy. Looking at the long term, we still have a sell signal on SPY.

When the long term is sell and short to medium term is giving a buying opportunity, we should commit only a certain percentage (say 40%) of our portfolio to the trade.

Sector Analysis

Analysis showing which S&P sector ETFs are performing and which are not.

Symbol	Name	Short to medium term price analysis
xly	Cyclical	Upward momentum still O.K.
xlk	Technology	Price coming of a short term bottom. Price action does not look very strong. Should take some profit (sell some).
xli	Industrial	Loosing some upward strength. Still O.K.. Do not add new money.
xlb	Material	Loosing some upward strength. Still O.K.. Do not add new money.
xle	Energy	Loosing some upward strength. Still O.K.. Do not add new money.
xlp	Consumer Staples	Upward momentum strong. Turned up after 4/29/16.
xlv	Health	Loosing some upward strength. Still O.K..
xlu	Utilities	Weak upward momentum. Price moving sideways.
xlf	Financial	Upward momentum still O.K.

QQQ underperforming SPY

Stating the obvious that QQQ (representing growth stocks) is weaker than SPY (representing all sectors of the market). The sectors which are working are Utilities, Dividend paying stocks and REITS. These sectors are represented in SPY and not in QQQ. That is why SPY is doing better than QQQ.

The growth sectors in SPY are pulling it down while the dividend paying sectors are pushing it up. This indicates that it should remain in a sideways consolidation pattern, till some event changes that pattern. QQQ will keep on underperforming SPY, till we get some good growth in the economy.