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November 05, 2007
November 2007 Model Signals
There were no changes to the signals from Northlake's Market Cap and Style models for November. Large cap and growth remain favored over small/mid cap and value. There was some shift in favor of small/mid cap and value in the underlying indicators, however. I think the large cap growth trend is likely to stay in place for several more quarters but a temporary shift toward small cap and value would not surprising given the outperformance for large cap and growth over the past several months. Since the July 19th S&P 500 high, the S&P 500 is down just 3% compared to a fall of over 6% for the Russell 2000 and a 4% decline for the S&P 400 Mid Cap. In the style arena, the model shifted from value to growth on June 1. Since that time, the Russell 1000 Growth ETF is up 5%, while the Russell 1000 Value ETF is down almost 5%! That is basically technology stocks over financial stocks.
In the Market Cap model for August, all ten indicators were flashing growth. Four of the ten indicators now favor small cap. The shift has occurred in indicators which consider the shape of the yield curve, sentiment, breadth, and consumer confidence. In general, the indicators are picking up extreme readings that suggest a reversal could be at hand. This contrarian call would favor small caps.
The Style model is also drifting away from its long standing signal. In this case, the severely lagging performance of value over the past few months is driving a weakening of the growth signal.
I'd be surprised if either model moves enough this month to flash a new signal for December. January, on the other hand could see a shift to mid cap and value if current trends continue. If and when the signals change, I'll happily follow along. No reason to use a model like this if you are going to second guess it and neither model has given me any reason to second guess for the last three years.
As always thanks to Ned Davis Research for the initial development and ongoing maintenance of these models.
Posted by Steve Birenberg at November 5, 2007 08:57 AM in Models
1.S/P IS MOW AT 1488 ,JUST BELOW THE TECHNICAL SUPPORT LEVEL OF 1490.THE MARKET IS OBVIOUSLY FRAGILE,BUT WE ARE NEARING THE BEST SEASONAL PART OF THE YEAR.
IF THE MARKET ENDS BELOW1488,DO YOU THINK IT IS LIKELY THAT WE CAN GO INTO A MAJOR CORRECTION BEFORE THE END 0F 2007?
2.WHAT DO YOU THINK FAIR VALUE IS FOR APPLE,GOOGLE AND BAIDU? AS WE ARE APPROACHING THE WINDOW DRESSING PART OF THE YEAR FOR FUND MANAGERS,DO YOU THINK THESE LARGE SIZED GROWTH STOCKS[I.E APPLE,GOOGLE AND BAIDU] MAY REFLECT GOOD STOCKS TO PURCHASE AT THIS TIME?
1. The market can certainly go lower even against favorable seasonals if worries over a recession and the impact on corporates grow. That said, I think we are setting up for a decent rally and I would not be selling into this weakness. I'd be a buyer, in fact, on a very short-term basis, if we have a weak start tomorrow.
2. I don't have a spreadsheet on Google or Baidu. On Apple, I think fair value is $180-200 as I have written in my Apple comments on this site. Google I do track and I don't think the stock is overvalued at current prices. No idea on Baidu. If the market tanks, these stocks won't hold up due to window dressing or anything else. On a rally, I would expect them to continue to lead. I have not added to my Apple position anywhere near current prices. If I did own Google or Baidu I doubtl I would have added to them either.
Posted by: Steve at November 7, 2007 03:27 PM1 IT SEEMS AS IF WE WILL END WITH A VERY LARGE DOWN DAY AGAIN TODAY.EVEN THE MOMENTUM STOCKS,APPLE/GOOGLE /BAIDU ETC . ARE BEING HURT BADLY.
DO YOU THINK THIS IS JUST AN OVERDUE CORRECTION WHICH WILL SET US UP FOR A THANKSGIVING/END OF YEAR RALLY? OR DO YOU THINK THE RAPID DROP THROUGH S/P OF 1490 PORTENDS A MORE SERIOUS DOWNSIDE AND AT LEAST A RETESTING OF THE SUMMER LOWS?
2.DESPITE THEIR LARGE DROP IN PRICE,I ASSUME YOU HAVE NOT CHANGED YOUR EVLUATION OF CETV AND MICC.
3.ANY THOUGHTS ABOUT VMED?
Hi MP. Just back from a lunch meeting. I see you called. If these responses do not answer your questions, feel free to call later today or tomorrow morning.
1. I think we are in a severe correction but we are getting near the end. I see the sharp declines in AAPL GOOG, etc as something that happens at the end of a correction. People are finally throwing in the towel and selling the winners. It would be better if it wasn't Thursday afternoon. Traders aren't likely to buy tomorrow. However, I think we will start rallying next week. That said, the risk to the US and global economy are real and if we see more bad news the August lows are realistic. This type of action is why I take profits in winners on the way up.
2. No change at all for CETV or MICC. Has the news this week caused any changes to TV advertising in Ukraine or Romania? Are people going to buy fewer cell phones or cell phone minutes in Columbia or Africa? The market action is short-term noise against the long-term growth of these companies.
3. VMED's earnings were mixed. With US cable stocks acting so baldy I see no hope for a rebound at VMED. As you know I solid it in the mid $20s. No regrets and no plans to buy it back.
Posted by: Steve at November 8, 2007 01:14 PM