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It's All About Value

09/21/04 12:42:15 PM
by Arthur Hill

The advance in stocks since mid-August has certainly been impressive when looking at the point gains, but a look beneath the surface reveals a one-sided market.

Security:   $IGX and $IVX
Position:   N/A

The S&P 500 can be divided into two broad categories: value and growth. The S&P Large Value Index ($IVX) consists of stocks with relatively low price/book ratios and includes ExxonMobil, Citigroup, AIG International, Verizon and ChevronTexaco. In contrast, the S&P Large Growth Index ($IGX) consists of companies with relatively high price/book ratios and includes Microsoft, General Electric, Pfizer, IBM, Cisco and Intel.

Figure 1: Chart of $IVX.
Graphic provided by: MetaStock.
Even though both indexes (value and growth) have appreciated sharply over the last 18 months, value led the way higher and outperformed growth. The S&P Large Value Index ($IVX) began to outperform in March 2003 (blue line) and continues outperforming to this day. The price relative (value relative to growth), moved to a new high this month and remains in a strong uptrend.

Figure 2: Chart of $IGX.

Looking at the two price charts, we can also see two opposing patterns. After a sharp advance from Mar-03 to Jan-04, the S&P Large Growth Index ($IGX) formed a triangle consolidation and broke the lower trendline. Even though the index has rallied back over the last few weeks, it remains below the upper trendline and would need to break this level to turn bullish again.

In contrast to $IGX, the S&P Large Value Index ($IVX) sports a bullish pattern and breakout. After a sharp advance form Mar-03 to Jan-04, the index formed a triangle consolidation and then broke the upper trendline (green arrow). This breakout signals a continuation of the prior advance and should be considered bullish as long as the August lows hold.

Arthur Hill

Arthur Hill is currently editor of, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for and the main contributor to the ChartSchool.

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