Log In

The Technical Analyst

Main Menu

  • Home
  • Research
    • Provider Directory
  • Training
    • Introduction
    • Calendar
    • In-house training
    • e-Learning
    • Our clients
    • Testimonials
  • Awards
  • Contact
  • Sign Up

Opportunity for value and high vol stocks

Wednesday 17 July 2019 13:16 BST

The unprecedented divergence between the performance of various equity market segments offers a once in a decade opportunity to position for convergence, say Marko Kolavonic and Bram Kaplan, quantitative strategists at J.P. Morgan in New York.

Kolanovic and Kaplan point to a record divergence between value/cyclical stocks on one side and low volatility/defensive stocks on the other. The level of divergence is even greater than the dot com bubble valuations of the late ’90s; the Chart shows the valuation difference (in forward P/E) between value and the broad market, as well as between value stocks and low volatility stocks).

While they accept there is a secular trend of value becoming cheaper and low volatility stocks becoming more expensive due to a secular decline in yields, Kolanovic and Kaplan think the nearly vertical move of the last few months is unsustainable. Given the extreme divergence they think that something as little as hedge funds increasing net and decreasing gross exposure during a summer rally could trigger this rotation. They point out that hedge funds’ net is low due to the high level of shorts, most of which come from cyclical and high volatility stocks. This could, in turn, trigger a chain reaction of short covering, fundamental flows, and equity long-short quant rebalances in a low liquidity environment. This rotation would push significantly higher all the laggards such as small caps, oil and gas, materials, and more broadly stocks with low P/E and P/B ratios.

See Chart.

 

 

Research Archives

2021

  • January

2020

  • December
  • November
  • October
  • September
  • August
  • July
  • June
  • May
  • April
  • March
  • February
  • January

2019

  • December
  • November
  • October
  • September
  • August
  • July
  • June
  • May
  • April
  • March
  • February
  • January

2018

  • December
  • November
  • October
  • September
  • August
  • July
  • June
  • May
  • April
  • March
  • February
  • January

2017

  • December
  • November
  • October
  • September
  • August
  • July
  • June
  • May
  • April
  • March
  • February
  • January

2016

  • December
  • November
  • October
  • September
  • August
  • July
  • June
  • May
  • April
  • March
  • February
  • January

2015

  • December
  • November
  • October
  • September
  • August
  • July
  • June
  • May
  • April
  • March
  • February
  • January

2014

  • December
  • November
  • October
  • September
  • August
  • July
  • June
  • May
  • April
  • March
  • February
  • January

2013

  • December
  • October
  • September
  • August
  • July

2004 – 12

Research Categories

AI & Data Science

Commodities & Energy

Equities

Fixed Income

FX

Multi-Asset

Software & Technology

Get in Touch

Global Markets Media T: +44 (0)1483 573150
E:editor@technicalanalyst.co.uk
Sign Up
A:
The Technical Analyst
96 High Street
Guildford, Surrey, GU1 3HE
United Kingdom

The Technical Analyst

Since its launch in 2004, The Technical Analyst has brought technical analysis research and commentary to the institutional financial markets, supported by regular events and training courses.

The Technical Analyst is a division of Global Markets Media Ltd.

Copyright © 2021 Global Markets Media

Footer Menu

  • Cookies
  • Disclaimer
Design by Web Design London
This website uses cookies to store information on your computer. See our cookie policy for details on how to block cookies.
I am happy to proceed