I follow a very simple ratio every day, which is the iShares Russell 1000 Growth ETF vs. the iShares Russell 1000 Value ETF (IWF:IWD). This ratio tells us whether traders have the necessary risk appetite that typically drives equity prices higher, especially the NASDAQ, which is littered with high-growth technology companies. The long-term positive correlation between this IWF:IWD ratio and the NASDAQ 100's ($NDX) performance vs. the benchmark S&P 500 is evident from the chart below:
The correlation coefficient is almost always above +0.50, reflecting the NASDAQ's need for growth stocks to be in favor. Currently, this IWF:IWD ratio is at a 3 1/2 week low, directly impacting - in a negative fashion - the NASDAQ's performance. Those who are bullish U.S. equities want to see the IWF:IWD take another turn higher or, at the very least, consolidate and base during the balance of September. Failure to do so would likely lead to further weakness as we enter the second half of September - historically a bearish period.
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Happy trading!
Tom Bowley, Chief Market Strategist, EarningsBeats.com
