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The StockCharts.com Market MessageFeaturing our commentators, John Murphy and Arthur Hill 

Thu, Apr 21 2016 1:45 PM ET

 VALUE STOCKS ARE GAINING ON GROWTH -- VALUE GROUPS ATTRACT ATTENTION AREFINANCIALS, ENERGY, AND HEALTHCARE --STAPLES AND UTILITIES TURN DOWN ONBOUNCING BOND YIELDS -- RISINGCOMMODITIES ARE BAD FOR BOND PRICES --

 VERIZON LEADS TELECOM LOWER 

 By John Murphy

S&P 500 GROWTH ISHARES ARE STARTING TO LAG... For the first time

since the latest bull market began in 2009, value stocks are gaining ground on

growth stocks. The bull market is in its seventh year and looking very mature. One

 way some investors are participating in the current uptrend without taking too

many chances is by moving money out of growth stocks that depend on growing

earnings (in a slow earnings environment) and into value stocks that are consideredto be undervalued. Chart 1 shows the S&P 500 Growth iShares (IVW) up

against their fourth quarter highs. The IVW/S&P 500 ratio (top of chart),

however, shows that the IVW has been lagging behind since January. Technology is

the biggest part of the IVW. Technology stocks have been one of April's weakest

sectors. The tech-dominated Nasdaq market has also underperformed since the

start of the year. Apple (AAPL) is the biggest holding in the IVW and is down 10%

since November. Other large holdings are Microsoft (MSFT), Facebook (FB),

 Amazon (AMZN), and Google (GOOGL).

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(click to view a live version of this chart) Chart 1

S&P 500 VALUE ISHARES ARE DOING BETTER... Chart 2 shows the S&P

500 Value iShares (IVE) having broken through its fourth quarter high and

nearing the highs reached last spring. The bigger story is the upturn in the

IVE/SPX ratio (top of chart) starting in January. That shows new leadership in

the ETF of undervalued stocks. [The 50-day average has also risen above its 200-

day line for the first time since August (blue circle) which is bullish]. It's not hard to

uderstand why considering that its biggest sector holdings are financials, energy,

healthcare, and industrials. All four sectors have started to show relative strength

after a long period of underperformance. They're also among the most undervalued

sectors in the stock market. Among its biggest stock holdings are Exxon Mobil

(XOM), JP Morgan (JPM), Wells Fargo (WFC), Chevron (CVX), Johnson

& Johnson (JNJ), Merck (MRK), Citigroup (C), General Electric (GE),

Pfizer (PFE), and Schlumberger (SLB). That's an impressive list of recent

market leaders.

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(click to view a live version of this chart) Chart 2

 VALUE GAINS ON GROWTH ... Chart 3 is a "ratio" of the S&P 500 Value

iShares (IVE) divided by the S&P Growth iShares (IVW) over the last two

 years. The value/growth ratio bottomed in January and broke a falling two-year

resistance line. That's the biggest gain in value in two years. Its longer range chart

suggests that the pendulum may be swinging back to value stocks.

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(click to view a live version of this chart) Chart 3

 VALUE IS OVERSOLD VERSUS GROWTH ... Chart 4 is a ratio of the S&P

500 Value Index ($SVX) divided by the S&P 500 Growth Index ($SGX). [I

switched to their cash versions to get a longer-range perspective]. The green line isthe 14-month RSI. The chart shows two previous turning points in 2000 and

2007. The value/growth ratio bottomed in 2000. Notice that the 14-month RSI

formed a "positive divergence" of rising bottoms between 1998 and 2000 which

signalled a major bottom in the ratio from oversold territory below 30. That

signalled a shift toward value. Between 2006 and 2007, the monthly RSI line

formed a "negative divergence" of falling peaks from overbought territory over 70.

That signalled a shift to growth. To the bottom right, the 14-month RSI is

rebounding from oversold territory for the first time since 2009. That suggests that

the pendulum may be swinging back to value for the first time in nine years. Which

is just another way of saying that investors may be starting to move into

undervalued parts of an aging stock market.

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(click to view a live version of this chart) Chart 4

STAPLES AND UTILITIES TURN DOWN ... Chart 5 shows the Consumer

Staples SPDR (XLP) threatening to fall below its 50-day average for the first

time since February. Its relative strength line actually peaked in February. Chart 6shows the Utilities SPDR (XLU) already below its 50-day line. Its relative

strength line is falling as well. A lot of people have wondered why those two

defensive groups held up so well during the last two months as the market rallied.

In fact, their relative strength lines started slipping in February when the market

 bottomed (two top lines). Low bond yields also supported both dividend-paying

groups. The green bars in Chart 6, however, show the Treasury 10-Year yield

starting to rebound. That's hurting bond proxies like utilities.

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(click to view a live version of this chart) Chart 5

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(click to view a live version of this chart) Chart 6

HEALTHCARE SPDR TURNS UP... Healthcare qualifies as one of the market's

most undervalued groups that's starting to attract new money. Chart 7 shows the

Health Care SPDR (XLV) climbing above its 200-day average and a resistance

line drawn over its August/December highs. The XLV/SPX ratio (top of chart) has

started rising as well. Energy is another one.

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(click to view a live version of this chart) Chart 7

EXXON MOBIL TURNS UP ... I mentioned in paragraph two that energy was

the second biggest sector in the S&P 500 Value iShares (IEV), and that Exxon

Mobil (XOM) was the biggest stock holding. Chart 8 shows Exxon having climbed

above its November high to initiate a new uptrend. Its 50-day has also crossed over

its 200-day average forming a bullish "golden cross". New buying in the energy 

patch is based on the price of crude oil rallying to a new five-month high. I suspect

this year's rally in oil and other commodities is one of the reasons that bond yields

are bouncing.

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(click to view a live version of this chart) Chart 8

RISING COMMODITIES HURT BONDS ... The brown bars in Chart 9 show 

the Reuters/Jefferies CRB Index (plotted through yesterday) bottoming in

February and climbing to the highet level in four months. The CRB includes 19actively traded commodities, most of which have been rising. Energy and metals

have been two of the strongest groups. Historically, rising commodity prices have

 been bad for bond prices. That's because rising commodities imply higher inflation

in the pipeline which usually pulls bond yields higher and bond prices lower. Chart

9 shows the the upturns in the CRB Index during February and April coinciding

 with weak Treasury bond prices (green bars). That also explains why money has

started flowing into inflation sensitive stocks like energy and metals, and out of 

interest-sensitive stocks like staples and utilities. And telecom.

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(click to view a live version of this chart) Chart 9

 VERIZON LEADS TELECOM LOWER... Dividend-paying telecoms are also

falling today. Chart 10 shows Verizon Communications (VZ) tumbling below it

50-day average. The company warned that problems with its labor union may hurtsecond quarter earnings. At least that's the headline reason. I suspect it may have

more to do with the jump in bond yields. The Verizon/SPX ratio (top of chart) also

peaked in February when bond yields bottomed. Telecom stocks are one of the day's

 weakest groups along with staples, utilities, and REITs. And they're all falling for

the same reason. Rising bond yields diminish the appeal of dividend-paying stocks.

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(click to view a live version of this chart) Chart 10