Published in the March 2022 CMTA's Monthly Publication, Technically Speaking.
RPV: Invesco’s S&P 500 Pure Value ETF 03/01/2022
Over the course of the last year or so, the theme of value over growth has been widely discussed amongst technicians. As of March 1st 2022, out of the 26 US growth, value, and core ETFs I track, only one is showing a positive return this year-to-date. That return is just over 2.5%. That symbol is RPV, Invesco’s S&P 500 Pure Value ETF. What follows is an abridged technical investigation.
Background:
RPV has been trading since early 2006. 16 years as of March 2022.
RPV has 122 component companies.
RPV’s 5 largest sectors by market cap include financials at 32%, health care at 11.5%, staples at 10%, energy and communication services at 8%.
RPV’s criteria for inclusion are based on a mix of standard fundamental ratios.
RPV’s largest 5 holdings are Berkshire Hathaway(BRK.B), Prudential Financial(PRU), Cigna Corp(CI), Metlife(MET), and Archer-Daniels-Midland(ADM).
CHART 1 – PRICE HISTORY & CURRENT TREND. Click to enlarge.
Price History:
A. Price peaked in May 2007 at $37.47.
B. Price then plummeted, almost 77%, to $8.70 in February 2009. Using this price range, I have added two Fibonacci extensions, 161.8% and 261.8%, which are the inverse golden ratio (IGR) and the IGR ratio to the 2nd power.
C. From B to C, price trended upwards for more than 5 years until it reached the 161.8% Fibonacci extension. From that point it went sideways for the next 2 years.
D. After breaking above the 161.8% extension in November of 2016, price peaked in early 2018 and then traded mostly sideways for 2 years.
E. In late 2018, price declined to test earlier resistance and confirm it as new support.
F. Price rallied from E until the Covid peak in 2020. Price then fell through the 161.8% extension level and continued to decline to the $37 level which was resistance from 2007.
G. Price rallied in a stunning vertical move of almost 125% that lifted price all the way from F to its 261.8% extension level where price is now slowing. This is evidenced by 40-week simple moving average flattening out with price nearby.
Trend:
As noted in bullet G above, the current trend is moving sideways as evidenced by a flattening 40-week simple moving average.
Applying Wilder’s ADX will confirm that the trend is in a non-trending condition. The ADX line is flat, below 25, and under both of its DI lines. See chart 3 below.
Chart 2 – MOMENTUM, VOLATILITY, & VOLUME. Click to enlarge.
Momentum:
Momentum is showing a negative divergence with price. This is highlighted with the red arrows. This divergence is confirming what we are seeing with price and trend. Momentum has slowed as price moves more sideways than up to digests its gains and meet its 261.8% extension.
Volatility:
Standard deviation around its 40-week simple moving average has compressed through December 2021. It is now starting to expand.
We are seeing an expansion of volatility in the broader markets, so that leads to the question: Is this expansion in RPV’s volatility a result of broader market volatility, is this expansion hinting that RPV is ready to break upwards, a combination of both, or perhaps neither?
Volume:
Volume is significant and well above its 40-week average. The 40-week average volume is over 3 million shares. For reference, SPY’s 40-week average volume is 376 million shares.
While not necessary for price to advance, a reduction of volume would show that buyers have successfully absorbed the supply hitting the marketplace. This would enable buyers to push the price above the 261.8% extension level as demand would be greater than supply.
Adding Granville’s On-Balance Volume or Chaikin’s Accumulation-Distribution indicators will show that both indicators confirm the recent price highs. See chart 3 below.
Adding volume indicators such as a volume weighted MACD or the ROC of the volume average will show non-confirmation of the January swing high. These divergences speak to a reduction of the sustained ferocity of buying. This is evidenced by all the above points in trend, momentum, and volatility. Net buying has slowed, though transactions remain elevated as supply comes to market. See chart 3 below.
Chart 3 – ADX, OBV, & VOLUME WEIGHTED MACD. Click to enlarge.
Chart 4 – RELATIVE STRENGTH. Click to enlarge.
Relative Strength:
These relationships have been down trending below their downward sloping 40-week moving averages since 2014.
These relationships bottomed in late 2020. They are currently inside of ascending triangles.
Conclusion:
RPV has outperformed all the major US Equity indices and all the US value ETFs this year-to-date. Based on the evidence above, as a trend trader, I am looking for the following:
The relative strength relationships to break above their May/June 2021 highs.
The 40-week simple moving averages of these relationships to start sloping upwards.
RPV’s price above $85 on an absolute basis, ideally on strong volume.
While monitoring for the above conditions, technicians are sure to find individual names in RPV that are currently outperforming US markets. Reach out for ETF source data or with questions and comments.
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