Euro Stoxx Value stocks or Euro Stoxx Growth stocks: which are better?

The definitions of Value and Growth stocks, come from Fundamental Analysis rather then Technical Analysis. However, Technical Analysis can also evaluate these types of stocks using the Relative Strength Ratio. If we historically compare the Euro Stoxx Total Market Growth Large Index with the Euro Stoxx Total Market Value Large Index creating a chart of the last twenty years, we obtain the following graph.

Every time the ratio rises, growth stocks perform better than value stocks. Each period has been separated with a vertical line coloured in red if the period is favourable to the growth style or in green if the value style predominates. Within the graph, you can see a performance table indicating the results for each period considered.

It is clear that in the long run the growth style is numerically more performing (170,23% vs. 87,75%).

Towards the end of 2009, the Growth style took over the value style, creating a historical low (L1), and two subsequent higher lows (HL2 and HL3). But in this bullish construction there were no higher highs, but only a triple top that was formed between 2013 and 2018.

On a chart with a narrower time horizon, we can see that the indicator is forming a triangle pattern. It is interesting to note that an oscillator like the MACD can identify very clearly the negative divergences (indicated in the black dotted channels), which anticipate a potential weakness and fall of one style with respect to the other.

At this moment, the negative divergence that is forming, is supportive to a future greater strength in favour of the value style. But the length of the pattern is shorter than the previous ones, so it is reasonable to follow the formation of this new pattern to see in the coming weeks if it will come a confirmation for this potential change.

Mario Valentino GUFFANTI CFTe – SAMT Vice President – Swiss Italian Chapter – mario.guffanti@samt-org.ch

Disclaimer: the above article is for general information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.