Value Line Index Diverging

The Value Line Geometric Index (XVG) was launched in 1961 and is an equal-weighted index of almost 1,700 US companies. This means that, unlike the S&P 500 for example, each company holds an equal weight in the index and is not dominated by a handful of popular (FAANG) stocks as is the case with the S&P 500. After a long bull market, market-cap weighted indices tend to become distorted and dominated by the market leaders that have led the charge during the bull market cycle. Interesting divergences tend to crop up as the bull market ends. In the chart below, it is interesting that $XVG is showing substantial weakness when compared to the S&P 500. This happened in 2000 and again in 2007. The market-cap weighted S&P recently made new all time highs, thanks to the FAANG stocks, which now account for 16% of the Index. Fewer and fewer stocks are participating in this bull market. Breadth is narrowing to just a handful of names. Time to stay frosty.


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