Todd Gordon, Founder, Inside Edge Capital and TradingAnalysis.com hopped on with Benzinga's Premarket Prep team to show his Relative Rotation Graphs which help you visualise market rotation.
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00:00So, what we're doing here is I'm looking at a few different things. So, this is rates,
00:04this is US 10-year yield in orange, and this is the value growth ratio in blue. And as
00:10you can see, in 2016, 17, 18, we had US yields dropping, value growth ratio declining, which
00:19means value underperforms growth, growth outperforms value. All of a sudden, we got 21, 22, you
00:26know what happened there, inflation explosion, we got a good rotation into value, right?
00:31Because value growth in blue is moving up as rates are going up, right? The valuation
00:36question with higher rates makes it hard to want to hold tech stocks, you know, with the
00:40promise of big profits down the road. Well, all of a sudden, we got value growth sell
00:45back down, and we're at this triple bottom here. Rates, 10-year yields are trying to
00:50decide what to do. So, as this long-standing relationship, is it trying to divorce itself
00:57and diverge? Are we going to get a break of this triple bottom of value growth, which
01:02means growth is further to the right, and you can see these things rotate around the
01:07corner. As you're moving in a clockwise fashion, growth is outperforming value. This is the
01:12monthly on the left. Here's the weekly. This is the last six, seven, eight, nine weeks.
01:18If we could get a hook back in growth this way, value, which is in green, goes this way,
01:24it's probably going to decide the fate of this triple bottom value growth ratio that
01:29goes back to the pandemic. And if you break down there, it probably means growth is going
01:35to continue to outperform. The market is going to deal with, you know, four, four and a half
01:4110-year yields. The real yield is call it two, two and a half, two, seven, five, and
01:46the economy can go on and do business on that because our real rates are still what
01:50they were five years ago, two, two and a half percent, but we'd have an inflation back there.
01:54Companies can invest, companies can borrow. And I think, you know, with Nvidia coming
01:59up, I think earnings have been awesome. I think the AI revolution is very much here.
02:05You know, I think that that triple bottom breaks and we get a clear rotation back into
02:09growth. And I think, you know, the hedge that I didn't finish my point on the S&P, you know,
02:17we can go put a 5,500, 5,000 SPX put spread on in January, February. I think it was like,
02:24I don't know. So it's a 500 point spread. You can put it on for 40, 50 bucks, you know,
02:30so it's, you know, you're risking 50 to make 450. So even if there's a 30, 40% chance of
02:37needing that hedge based on everything that I just said, you know, I know we want to get
02:42into specific stocks, but like, I'm willing to take that high reward, low risk hedge for
02:48our clients, but also put ourselves in the position that Nvidia could be 160, 170 bid
02:54after they come out and report what? 50 billion in earnings? I don't know. What do you think
02:59they're going to put up there? So like, I want, I'm still very bullish. I think the
03:04hopefully if this election isn't a train wreck, we can get through it, focus on how
03:09hawkish or dovish the Fed is, and it's back to business.