RTY and SVX
August 26, 2020
At new highs, the S&P 500 may not face overhead supply but technical resistance still exists. At the moment, the SPX is trading above easy-to-identify resistance at ~3450, but the close is far more important. If the SPX closes above 3450, we’ll turn our attention to the Russell 2000 (RTY) and S&P 500 Value Index (SVX) for forward-looking technical clues on the broad market. We expected these indices to begin a retracement after the latest peak in US COVID-related hospitalizations began in late-July. Within value, our preference was to invest in companies with sustainable dividend yields in the ~4% range. The retracement has begun and those same positions are now yielding ~3%, but still preferred over heavily crowded positioning in Investment Grade bonds. Many of the companies in RTY and SVX are also inexpensive based on our DCF-based targets and they’re under-owned.