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Equity Perspectives

What might a key market sentiment signal be telling us now?

We believe that combining fundamental and technical factors is central to the goals of generating returns and managing risk in our growth equity portfolios. That’s why we have incorporated technical analysis as a major component of our growth investing strategy. (See this commentary for more insights on this topic.)

Amid the current volatility, we have been examining chart action in major equity indexes for key signals. We thought the chart below, tracking activity the Russell 3000® Index, might be especially useful for investors as they focus on how long the current bout of selling pressure may last.

 

Reading Key Technical Indicators for the Broad U.S. Stock Market
Price (top) and price relative to 150-day moving average (bottom) for the Russell 3000 Index,  March 23, 2005-March 23, 2020

Source: FactSet. Data as of March 23, 2020. A moving average is a technique often used in technical analysis (see below) that smooths price histories by averaging daily prices over some period of time. 
The information shown is for illustrative purposes only and does not represent any specific portfolio managed by Lord Abbett or any particular investment. Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that markets will perform in a similar manner under similar conditions in the future.

 

What is it telling us? Here are a few observations.

  1. During a correction, history has shown us that the first positive signals often occur when sentiment and breadth indicators become oversold.
  2. As an example, as of this writing the price of the Russell 3000 index is furthest below its 150-day moving average since the global financial crisis.
  3. These oversold indicators tend to be “early” so we will have to shift our attention to other signals for signs of stabilization and market strength.
  4. An example of market strength that we will look for will be a strong follow-through day for the index.
  5. Once we have bullish confirmation from several other signals that we monitor, we might begin to increase exposure to innovative companies with positive operating and price momentum.

Combining fundamental and technical factors is central to our efforts to generate returns—and manage risk as portfolio managers. We believe this is never more essential than in times of elevated market volatility. We will be spotlighting more charts of interest in the weeks to come to help equity investors make sense of current technical trends—and the opportunities that may arise.

 

About The Author

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The Lord Abbett Growth Leaders Fund Class A seeks to deliver long-term growth of capital by investing primarily in stocks of U.S. companies. Learn more.
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