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A Return To Value?
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A Return To Value?

by The MoleSeptember 11, 2019

I came across a very interesting article this morning which argues that the proliferation of quant trading in combination with QE and a flattening yield curve over the past decade has largely favored momentum stocks to the detriment of value stocks.

The article goes into much detail but the general take-away is that with so many bonds carrying a negative yield, the markets’ normal signals became scrambled leading to equity factors to become overcrowded and over-extended. One may call it a polarization of quant algos collectively pumping quality whilst shorting value.

Joseph Mezrich, quant strategist at Nomura Instinet, recently pointed out that momentum was enjoying one of its best performances on record at both the long end (winners winning) and the short end (losers losing).

His graph shown above shows how the movement of the yield curve and how it relates to the performance of five equity factors identified in the pioneering work by economist Eugene Fama and Kenneth French. In essence a flattening yield curve ads Momentum and Profitability (i.e. Quality) while steepening aids small companies and Value.

So are we standing at the cusp of a market inversion from pumping Quality back to chasing Value? Does the ferocious sell off in bonds and gold signal a sudden regime change? The article states:

“The strength of momentum and quality, and the problems for value, are deep-seated. There is ample room for the reversal to continue for a long time. Value investors have been waiting a decade for the moment when their style of investing at last starts to perform. Now, it is as though Godot has finally arrived. But for value to outperform again with any consistency, it will probably require a normalization in the bond market.”

Well as the old saying goes: Rome wasn’t built in one day. After such a violent sell off profit taking usually produces a counter response we may be able to exploit. Of course as always here at Evil Speculator, price has to lead the way, which is why I am waiting for a breach of ZB 161’08 after which I am taking out a small long position.

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About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
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  • ridingwaves

    good find Mole….Tariff effect might play into value also…

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • ridingwaves

    damn if looking at a trade 10 different ways doesn’t just mutter things up…..
    https://www.youtube.com/watch?v=4kg9LasvLFE

  • Mark Shinnick

    That’s where I draw the line of preservation of mental capital because if my own models don’t make sense of what’s going on, I’ve got no business being there.

  • ridingwaves

    Sometimes u just need to trade it, instead of dissect it….

  • pepe

    Very interesting. Looks like sector rotation before the next leg up for stocks and leg down for bonds. VIX is breaking 15 with a possible return to the 12-13 area. Sitting on my hands waiting for TLT dropping to $136-$137.25 (or showing a significant bounce).

    Murphy writes about this as well this morning. https://stockcharts.com/members/analysis/20190911-1.html

  • HD

    Round numbers trade quickly approaching.

  • BobbyLow

    Yep. I gave up trying to think about all that could go wrong in the markets or right for that matter because it made my head hurt. 🙂 All I want to know for trading purposes is what’s happening today.

  • BobbyLow

    You thinking 3K?

  • BKXtoZERO

    waiting for 10 or so over 3K

  • Julie 35 – 25 – 36

    BAL (Cotton) grinding higher Taking 1/2 off and moving stop up
    JULIE

  • HD

    Harvest full moon on Friday the 13th. First in 20 years.

  • Mark Shinnick

    Its a tad premature but seeing reason for initial tvix in here…

  • ridingwaves

    yep, let the stop tell you if wrong or right…if I stuck with original stop on LABU instead of getting bad feeling….I’m up $5 a share….

  • Mark Shinnick

    Don’t you wonder if it means anything pre-arranged by powers that be?

  • HD

    Pre arranged- here’s an example. We rally on 9/11 every year. I think it’s awesome. USA!

  • BKXtoZERO

    Yes…. Every year. I noticed too many years ago. Some trepidation heading in…then if things are ok they punish bears. Same script.

  • Mark Shinnick

    Well…I got some tvix good pricing so I guess I’m on-notice.

  • Julie 35 – 25 – 36

    911 today. We were living in Oregon at the time.It occurred approx 6;15 am Pacific Time My husband returned home from work We will never forget. Someday we plan on visiting the new center.Miss Oregon Katie Harmon was crowned Miss America that year and gave a heart rendering tribute Again we will never forget
    JULIE

  • Julie 35 – 25 – 36

    SPX Today’s low and bounce Yup Off the 5 ema exactly
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • HD

    when the $VIX was ripping north of 23 last month I said it’d surely fall back to 12. You can wait or just take what they gave us. /VX went 21-15 it pays well.

  • Julie 35 – 25 – 36

    GG It’s an excellent chart along with $BPSPX 8 ema and $NYSI 10 sma We are in
    a holding pattern with our 401K’s. This is the 1st time that we have not gone long with the positive indicators
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    that’s dangerous IMHO. I missed out of 6 months in 2016. Ignored a signal.
    I made up for in it in 2017.
    😉

    Time Check!

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    USO,
    at least it’s in a range. (if you’re into that kind of thang)
    https://uploads.disquscdn.com/images/19ba24b39b5e48510989d7e9da42514325439a3f8648e060a8b9ac3e06006139.png

  • Julie 35 – 25 – 36

    There should be a pullback then we will go long the reversal
    JULIE

  • Julie 35 – 25 – 36

    USO The descending triangle option still valid GG
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    why not a pennant?

    gotta run.

  • HD

    3000 trades

  • Julie 35 – 25 – 36

    Tonight Montana St Univ a candlelight ceremony for 911 We will be there. Everyone Have A Great Day
    JULIE

  • http://iberianviews.blogspot.com/ catracho

    only 310 points on dow for new all time highs…
    3 drives?

  • Julie 35 – 25 – 36

    $BKX Today a big intraday reversal closing t it’s high Target 101 – 102 (very strong resistance) We will know shortly
    JULIE

  • pepe

    TLT printed a gravestone doji on 60% of yesterday’s volume. Looks like the elevator will continue descending again tomorrow.

  • Julie 35 – 25 – 36

    Hi pepe Still watching 139 TLT
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    https://uploads.disquscdn.com/images/3dc6e456c3a3c90b2b28ea0ebfe5b0a6dc2adf90d1470854487cc8ce5dac8f45.png
    round numbers don’t matter much, the Matrix? just about says it all.

    On Oct 2018, a very special moving average was crossed. something changed in essence.
    all of 2019, has been struggling, lurching, to get back to that moving average. It did this summer, and was dejected several weeks. So here price is again, trying to get to that average (a deviation from average if you so desire). Q: what if it is rejected yet again? Perhaps trade war Hopium has vanished? who knows?

    -Have a plan, trade the plan

  • BKXtoZERO
  • mSquare

    But what soon after the inevitable?

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    A rebuilding of Zion.

  • Julie 35 – 25 – 36
  • http://gerb-reloaded.blogspot.com Gold_Gerb

    nice. the RSI & first level ring coincide. Your powers increase pouncy cougar.

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • BobbyLow

    I think this one was worth about 18 Points between 7:00 PM and 7:15 PM EDT. Gotta love it. 🙂

    https://www.marketwatch.com/story/trump-to-delay-tariff-hikes-on-250-billion-in-chinese-goods-until-oct-15-2019-09-11?mod=mw_theo_homepage

  • http://gerb-reloaded.blogspot.com gold_gerb

    FOMO, tweet, Hopium – whatever.
    ;-D

    https://www.youtube.com/watch?v=mrhtCSyRx6Y

  • http://gerb-reloaded.blogspot.com gold_gerb
  • BobbyLow

    Just took profit on my long position from yesterday afternoon. I’m back to cash and will check things out again in the AM. Have a good night GG. 🙂

  • http://iberianviews.blogspot.com/ catracho

    Backing down again – shows that he fears US is hurting more than China!

  • Mark Shinnick
  • Ronebadger

    FED should be happy

  • Ronebadger
  • Mark Shinnick

    Well…we’ve been ranging…. and are now with the upper part of past 3 month’s range so that’s still all there seems to see.

  • https://evilspeculator.com Sir Mole III

    So Draghi went out with a big bang. More QE, more asset purchases, more whatever it took to secure his final legacy of having burdened Europe’s citizens with trillions of Euros in debt never to be repaid, thus further hollowing out the middle class and assuring increased polarization between the haves and have-nots.

  • Mark Shinnick

    Funny…how does that common saying go about what’s insane ….”doing the same thing over-and-over again but expecting a different result.” Yet….nobody applies the maxim?

  • ridingwaves

    someone has to pay for all those migrants that seem to hate its history and ideals, while only wanting handouts at the expense of the prudent.

    Similar story here….asylum gamer mentality, the great illegal mooches of the south want only want thing…free money, food, housing, care….at the expense of the poor and middle class..

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    what a brave man. {snicker}
    https://i.guim.co.uk/img/media/14dab0eee9730f8a6e9b3d45e8c7ea6e5bcd0b9e/0_0_3600_2630/3600.jpg?width=700&quality=85&auto=format&fit=max&s=415e16f2f9c1ffac6659093ce2cf96f3

    “If you want a definition of what a coward is, it’s needing to push a whole class of people down so that you can walk on top of them.”
    ― Andrea Dworkin

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb

    problem, reaction, solution – Hegelian dialectic

    I once had a manager write me up for no good reason.
    ..found out a year later from another manager, the reason was manager was frowned upon for not having ‘problem employees’ to manage! that’s wicked logic, whipping your slaves *is good*.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    TLT,
    tentative support. for now.
    it’s a line in the sand, I can tell you that.
    https://uploads.disquscdn.com/images/e34fe13ca80b5da670e99c22a955913df973ca89073f89f8a5bb0189a4ec51de.png

  • ridingwaves

    Gundlach is laying it on right now….I think he has a short on…

  • pepe

    I can hear the flush coming through the drains of futility. Last famous words… 😉

  • BKXtoZERO

    L TVIX 13.57 day sized….

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Have you seen the movie?
    I suppose we’re all just rats in the sewer.
    😉
    https://prodimage.images-bn.com/pimages/0191329060827_p0_v1_s550x406.jpg

  • Mark Shinnick

    Same here…

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Mark Shinnick

    Maybe a culture of narcissism.

  • BKXtoZERO

    did you hold yesterday from 14+ ? I was wondering if you dumped. I am in a fair amount from 15.7, and back peddled out of other areas like 19 with bee stings so they got old BK this time. I was being patient in adding any more.

  • Mark Shinnick

    I have no justification for that. Some remained by error but mostly out.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    I’m suppose to have lunch with an old friend tomorrow, she was holding ULTA at 300.
    I wonder if I should bring it up? perhaps not.
    😉
    https://uploads.disquscdn.com/images/9201af85ea162243f3983006a59a1a1c21a5cc523a1935d2887c9a975b085b8b.png

  • Julie 35 – 25 – 36

    BAL Nice breakout above 37 up 3.6% so far today Have a remaining 1/2 position long and moving stop up again COTTON is making a run Guys and squeezing the COT Spec shorts
    JULIE

  • Julie 35 – 25 – 36

    139 is a support we have GG
    JULIE

  • Julie 35 – 25 – 36

    CHIEF…. An excellent ratio for Growth versus Value is IWF : IWD
    JULIE

  • Julie 35 – 25 – 36

    $BKX (Banks) An intraday reversal like yesterday Watching 101 – 102 very strong resistance Could blow thru
    JULIE

  • ridingwaves

    looks to be consolidating here or bit lower and then up….still bullish momo.

  • BKXtoZERO

    Aaaarg.

  • Julie 35 – 25 – 36

    Hi RW $TNX at very important inflection point Going up into it’s 55 ema and gap resistance overbought Let’s see what happens here with $TNX and $BKX
    JULIE https://uploads.disquscdn.com/images/244626f6c10d3bbe1b77ff4e74c3d7384b058ca7c747b3f3a46abae4e4867c7b.png

  • Mark Shinnick

    Yeah, bullforce appears controlling….really fascinating stuff happening with a lot of chart resistances right here.

  • Julie 35 – 25 – 36

    UNG What a run Now up into it’s 233 ema overbought STOCHS 13,8,5 Good one by Cyd as she nailed COTTON too She has a work up on PEN . Guys watch PEN @ 151 – 159 for a longer term short
    JULIE https://uploads.disquscdn.com/images/a09b66ef9b25a15459f3f5c873babe0f5fc3b63dd4e877965392df27e59614b2.png

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    agreed. I have a confirming chart.
    If price doesn’t move higher, and quick. the envelope is resistance.

    https://stockcharts.com/h-sc/ui?s=%24TNX&p=D&yr=2&mn=0&dy=0&id=p86721165588

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Everything I learned, I learned from Bugs.
    https://www.youtube.com/watch?v=oqCQuiq6eOo

  • Julie 35 – 25 – 36

    GG Cyd has a work up for you on PEN 5 charts and fundamental analysis. She is very busy today and said that she will come on board later with PEN
    JULIE

  • Mark Shinnick
  • http://gerb-reloaded.blogspot.com Gold_Gerb

    XLE was taking ‘a rest’ today. that explains that.

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    PEN? Penumbra? what?

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    finally. a move. how long were you waiting for that?

  • Mark Shinnick

    Yes…I got that 🙂 My favorite airplane is called Defiant.

  • pepe

    Quick bounce @ $139 (thanks Julie). Volume already at 11MM. I’m holding steady for another leg down as long as we don’t clear $140. 🙂

  • Julie 35 – 25 – 36

    Yup GG … PEN a longer term short .. Gonna be a good one. She has spent many hours research and is going to preview at our investment club meeting tonight
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    No dividend? a PE ratio of 360? sub Million volume a day?
    I’d like to be a fly on that wall.

  • Julie 35 – 25 – 36

    GG You must follow the COT Commercials and ride their coat tails We wuz in their hip pockets UNG and Cotton
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Julie 35 – 25 – 36

    GG Cyd has PEN down … Love it GG … New Porsche Panamera for her coming up lol
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    don’t count your piglets until they hatch.
    =P

  • mSquare

    I am looking for it rise a bit more and to fill the gap of 1.75-1.85 and then reverse back lower.

    Astonishing that it was only early Aug when it rapidly descended from 2-ish to the 1.4x lows of last week. If I recall correctly, that was on the imposition of additional 25% tariffs on Chinese imports. If the Oct trade talks (once more) only lead to more meetings and no done deal, that is perhaps when we head back to new lows in ^TNX?

  • Julie 35 – 25 – 36

    Hi mSquare. If $TNX blasts thu the 55 ema IMO then watch the 89 ema then 144 ema
    JULIE

  • BKXtoZERO

    So ES 4000?

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Mark Shinnick

    Kelly Johnson…amazing dude. Here’s what I fly (a buddy in Indiana):
    https://uploads.disquscdn.com/images/902075a7ec9132fc771019b26854f02dd7dc98e9f1e2b2c0b45d1cf1b1377031.jpg

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    is that a turbine on the nose? Perhaps you would appreciate the
    off-road version
    https://www.youtube.com/watch?v=eqUc6HRTzBc

  • ridingwaves

    L SQ. 56.90 stop

  • Mark Shinnick

    Well, its getting modified with 4 turbines. I was planning to get my jet rating in my Q-Jet project….but then the test pilot did this:
    https://www.redbull.com/int-en/videos/AP-1QPD5KQXS1W11

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    just get a nice workhorse embraer and call it a day.
    I’ve lost count how many times I flew in one.

    https://www.youtube.com/watch?v=KAqjmuZ9yvo

  • Cyd

    PEN Target 151 – 158 Spruce Point Capital Management a forensic research and hedge fund specializing in shorting has a short alert PEN Management is playing games with creative accounting and growth prospects. Recent insider activity indicates the rubber meeting the road

    Other forensic hedge funds are Prescience Point Research and Capital Management and Kerrisdale Capital Management

    PEN 5 analysts with 3 a strong buy and 2 a buy which leaves the door open for a downgrade. Their average consensus price target is 174 with the low being 151 and high being 185 so definitely a lowering of price targets is a possibility

    Now PEN has beaten on the earnings beat the previous 4 quarters but their shenanigans are now being exposed with shorts piling on sensing blood. Current short ratio is 9.61 days to cover and short % of float is approx 17%

    A great time to short this soon to be dog is the completion of a short squeeze which is occurring now with the general market advancing
    Cyd https://uploads.disquscdn.com/images/5b53a7e0e6e615032f90a11d607506ef516ad3bf885660343fc74e1ce61c7a24.png https://uploads.disquscdn.com/images/8e5e470ab61d68487eb29f3868a45b65346103e28ef62fe5f268c47127896ae6.png https://uploads.disquscdn.com/images/d97c290fd6e013e4e9977b751b2fc35be6d00e09fd98cc612ae23e553a42dd46.png https://uploads.disquscdn.com/images/23e4f36812a05cc42e74a40c1e2f1b9e85ec57a02cd90d0afd048f88c941c3b5.png https://uploads.disquscdn.com/images/848e885706a849cf55eff5f911803ba512e67834d81850c2cd75358449ef8544.png

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Oooooooh. a short-the-dawg view. that’s a relief.
    😉

  • Mark Shinnick

    Lotta truth to that, I climbed around a lot on its progenitor competitor, the Canadair Challenger back in the 80’s

    https://youtu.be/rXpGy5O2FFk?t=68

  • Mark Shinnick

    ….seriously ?? :/

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    ps. On the weekly, it’s almost mid-15week-cycle
    https://uploads.disquscdn.com/images/5ba1939c7825880a13a3ca3a4c9e77c40d6229943ce0c84a92d0c55ff7fac9dd.png
    edit: the lower BPNYA, is against you. need a reverse setup.

  • Cyd

    Hello Mr G I have spent hours on this soon to be dog and will give a presentation tonight at our club meeting. Checkout and google Spruce Point Capital Management. They are great along with the other firms i have listed above. Julie and I let the Boys do the research as we are not accountants.LOL!
    Cyd

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • mSquare

    SQ good company but likely more downside on the expensive stock (down from very expensive).

    Why the $56.90 stop? Please elaborate

    https://stockcharts.com/h-sc/ui?s=SQ&p=D&yr=1&mn=3&dy=0&id=p37104614163

  • Cyd

    Games alright management is playing games and now caught with their pants down exposing themselves They are going to be taking it in their shorts.LOL!

    Cyd

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    ok ok. 6 weeks down, leaves 6 weeks to try-and-go-up.
    good hunting!

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    half of 180 is 90. that much I can calculate.
    oh LOOK. the lower pitchfork is around NINETY.

  • Cyd

    Two weeks up Mr G 1/3 to 1/2 up which is 38.2 – 50% time
    Cyd

  • ridingwaves

    so was LABU….

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • nirav777
  • ridingwaves

    in at 58.01…goes below 57, heading lower…oversold on hourly, momo divergence…

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    alright, you can use my material.
    1) honorable mention

  • Cyd

    PEN has a downward target 85 – 110 by Spruce Point so we can back the truck up. I have checked into Porsche Cayenne’s as you know I am looking for a new car to buy.There is not a Porsche dealer in MT There is a 2016 Cayenne in Portland that is guaranteed by a dealer with low miles I have some vacation time left so Julie and I and Grizz may go to Portland shortly. My dad and a mechanic have checked it out and approve this Cayenne. Julie actually has another week of vacation accrued. We have not been to Portland in awhile and our families live there

    Cyd

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb

    Time check, that’s it, wrap up the bacon.

  • Cyd

    LOL!
    Cyd

  • ridingwaves

    scaling into LJPC with 16 target. much higher pps possible over next 60 days if any news…..partnerships etc..

  • Julie 35 – 25 – 36
  • Julie 35 – 25 – 36

    Growth versus value A chart pertaining to our Chief’s topic above Growth must climb back above relative resistance and above uptrend line If not then value will be in play
    JULIE https://uploads.disquscdn.com/images/6cd14dc78f4ce90cfd8a6b9ce0adaf4f5e06f7317a062f5435db9319618d9200.png

  • https://evilspeculator.com Sir Mole III

    Hey guys – how’s everyone?

  • BKXtoZERO

    Hanging in there. I was expecting this after 6 times of knocking on 2950…. That said I was a little too complacent. It looked so obvious I thought it was a fake out. Now that we are here….much further and bulls win again. Shoulda stayed w my Natty Gas value play idea.

  • pepe

    Excellent. Since my disastrous gamble on TLT puts in early August (!) I did some self-reflection on my [lack of] trading strategy and formulated a real plan (money, risk and trading). It’s been working well since. 🙂

  • mSquare
  • https://evilspeculator.com Sir Mole III

    There you go!! 🙂

  • https://evilspeculator.com Sir Mole III

    So what is your system? Do you have rules or are you just winging it by public consent?

  • BKXtoZERO

    Hi Sir. I have rules for money management but MKT read and entries are an amalgamation of things I see myself. (Everything except Elliot wave lol) and not people you see here. I seldom follow if you noticed)