What Is The Value Line Geometric Index Telling Us?
- Chris Kline
- Jul 22
- 3 min read
Good morning! Before I get to my daily briefing points, I'd like to formally welcome Zachariah Kline to the firm. In case you're wondering, yes, that's our oldest son (proud pop moment!), who as you can see has much better and more hair than me. ;) With degrees in mathematics and computer science, Zach is going to be a great addition to the firm! If you get the chance, give him a warm welcome: zach@careformywealth.com.
1.) RATES – Moment of truth for bond yields. The US 10YR Yield is currently signaling a bullish (upward bias) trend for both the short term (<4 weeks) and intermediate term (>3 months). The 10YR Yield is at 4.64% with the most recent high at 4.67%. The signals suggest that the yield wants to move higher here in the short term. However, longer term, you can see that the yield is at significant resistance where it has topped several times over the last couple of years. Intermediate term, it would not surprise me to see these yields reverse and head lower. Bond volatility will help to identify if these yields break lower. So far, the MOVE Index (bond volatility) is still signaling a downward bias. If it breaks above 80 and holds, that changes… which might change the landscape of yields too.
2.) GEOMETRIC – The Value Line Geometric Index is one of the closest things we have to tracking a "middle stock". It’s been around since 1961 and follows roughly 1,700 companies. Instead of allowing a handful of giant stocks to dominate the calculation, it uses a geometric average that behaves much more like the performance of the typical stock. Why is this helpful? Well, imagine there are only three stocks in the entire market. One doubles. One doesn’t move. One gets cut in half. A normal average would tell you the market gained almost 17%, but that doesn’t really describe what happened. One company had a spectacular day. Another had a terrible one. The third barely moved. The geometric calculation says the market was basically flat because the huge winner and the huge loser offset one another. That feels much closer to the experience of the typical investor. This index answers a simple question better than almost anything else: If I picked a random stock out of the middle of the market, how is it doing? As I’ve said again and again, healthy bull markets don’t rely on a handful of stocks to do all the heavy lifting. They become healthier as more companies participate. Leadership spreads as more stocks begin making new highs and more industries contribute. The strength becomes broader instead of narrower. That’s exactly what the middle of the market is telling us today. This same index rolled over well before the dot-com bubble burst, and it weakened before the Financial Crisis. In both cases, the typical stock started struggling before the major averages made their final peaks. And today, we see the opposite. The picture below isn’t what you’d expect to see if the foundation of this market were cracking.
3.) BREADTH – Let’s expand on the above idea of a market where expanding participation is healthy. To do that, we need to look at participation, not price. Here is a look at the S&P 500 price versus its breadth/participation through the lens of companies making new 52-week highs. While the S&P 500 has consolidated, the percentage of stocks making a new 52-week high since March has continued to expand, rising from 35% at the S&P 500’s last high to 46%. For now, this suggests that a resolution to this recent pullback/consolidation resolves on the upside. Let’s see if the bond market agrees.
