Value stocks are those companies in the financial markets that appear to trade at a lower price relative to their fundamentals. While active traders do not often look to metrics such as earnings ratio, dividend yield, and book value, the heightened interest in this group has started to push prices higher, which has indirectly captured the attention of followers of technical analysis. In this article, we will look at several charts and try to determine how traders will position themselves over the weeks and months ahead.
- Value stocks have started to trend higher in recent weeks.
- The uptick in momentum has triggered bullish crossovers between long-term moving averages, which suggests that a long-term uptrend could just be getting underway.
- The top holdings of the SPDR S&P 500 Value ETF (SPYV) could be well positioned to a make a move higher over the weeks and months ahead.
SPDR S&P 500 Value ETF (SPYV)
Most traders who want to gain exposure to a specific niche of companies often turn to exchange-traded products such as the SPDR S&P 500 Value ETF. As the name suggests, the managers of the SPYV ETF focus their efforts on holdings within the S&P 500 that could be undervalued relative to the broader market.
Looking at the chart below, you can see that the price has been consolidating near the 200-day moving average since recovering from the March selloff. The rise in prices over the past several weeks is now capturing the attention of active traders because the price has closed above the influential resistance of the horizontal trendline near $31.75. Based on this pattern, we would expect traders to maintain a bullish outlook on the value stocks within the S&P 500 until the price closes below the trendline or one of the nearby long-term moving averages.
Verizon Communications Inc. (VZ)
As one of the top holdings of the SPYV ETF and given the strong demand for telecommunication services, Verizon Communications Inc. (VZ) is likely capturing the attention of traders. Looking at the chart below, you can see that the price of the stock has stepped higher by breaking beyond the resistance of the dotted trendline.
Price action near current levels and the upward-sloping 50-day moving average suggests that the bulls are in control of the long-term trend. From a risk-management perspective, stop-loss orders will likely be placed below $59.40 or $56.64, depending on risk tolerance and outlook.
Value investing developed from a concept by Columbia Business School professors Benjamin Graham and David Dodd in 1934 and was popularized in Graham's 1949 book, The Intelligent Investor.
Bank of America Corporation (BAC)
Another top holding of the SPYV ETF that will likely capture the attention of traders in weeks ahead is Bank of America Corporation (BAC). Looking at the chart below, you can see that the 200-day moving average has acted as a strong level of resistance since the selloff in February.
The recent uptick in momentum has triggered a bullish crossover between the long-term moving averages, which is a popular long-term buy signal known as a golden cross. From a risk/reward standpoint, traders will likely maintain a bullish outlook on the stock until the price moves below one of the nearby support levels.
The Bottom Line
Value stocks are of specific interest to many investors during these turbulent times. The recent uptick in buying interest has also started to capture the attention of active traders because of long-term buy signals and clear guides for determining the placement of stop orders.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.