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October 02, 2009
October 2009 Models: Small Cap Run Ends, Mid Cap Favored
After 13 months flashing a Small Cap signal, Northlake's Market Cap model shifted to Mid Cap for October. I had anticipated this move after steady weakening of the small cap signal over the past several months. The new mid cap signal is a weak one and could shift back next month but the message is clear: the extreme conditions in place in the economy and credit markets have eased reducing the attractiveness of small caps as the play in a market and economic recovery.
As a result of the shift, all Northlake client positions in the Russell 2000 (IWM) dedicated to the model were sold and the proceeds were reinvested in the S&P 400 Mid Cap (MDY).
The Style model was unchanged for October. The Value signal that has been in place since July 1st remains in a slightly stronger position. All client positions in the Russell 1000 Value (IWD) have been maintained. Last month growth slightly outperformed value but since the current signal was triggered, IWD has beaten the comparable growth index (IWF) by almost 4%.
Two underlying indicators in the Market Cap model shifted in favor large caps this month while one shifted in favor of small caps. Please keep in mind that the model rates ten factors as favorable for small or large cap and a mixed result leads to a mid cap signal. Also remember that the models almost work in stair step fashion, moving from small to mid to large to mid to small.
The factors shifting in favor of small caps were a peaking in advisory service bullish sentiment and the continued weakness in the dollar. Technical indicators moved back to favoring small caps reflecting the very strong relative performance of small cap stocks over most of 2009.
During the 13 months the small cap signal was in place, the return for the Russell 2000 Small Cap index matched the return of the S&P 500 as both fell 18%. The small cap signal was inaccurate in the fourth quarter of 2008 but fully reversed the lost performance in 2009. In fact, in 2009, the Russell 2000 has produced a return of 22%, about 5% ahead of the S&P 500.
Posted by Steve Birenberg at October 2, 2009 01:04 PM in Models
WHAT DO YOU THINK OF CETV'S $3 DROP TODAY AND MORE THAN $9 DROP OVER THE LAST WEEK OR 2?OBVIOUSLY, TODAY'S DROP WAS RELATED TO THE DOWNWARD GUIDANCE OF CETV TODAY.DO YOU THINK THIS IS JUST A MOMENTARY GLITCH OR DOES THIS NEWS PORTEND MORE SERIOUS PROBLEMS FOR CETV IN THE FUTURE? SOME ANALYSTS FEEL THIS IS A GOOD TIME TO BUY CETV.
Posted by: MP at October 14, 2009 02:19 PMI am attending the CETV analyst meeting in Prague tomorrow. Will learn more then but it is disappointing that 4Q has not shown an upturn. Key to the stock remains 2010. The stock assumed a big recovery at $38 and did not belong that high. I will have a better sense of the risk-reward tradeoff tomorrow.
Posted by: Steve at October 14, 2009 02:41 PMCETV IS DOWN TO $26. THIS COMPANY HAS BEEN A VERY UNRELIABLE STOCK THIS YEAR. IT LOST INITIALLY 90% OF ITS VALUE . NOW,AFTER RISING TO $38, IT HAS BECOME VERY VOLATILE AGAIN.IS THERE ANY HOPE IT WILL GAIN A BASE WITHIN THE NEXT QUARTER OR SO?MANY OTHER STOCKS AND SECTORS HAVE SEEMED TO STABILIZED AFTER THE MARCH BOTTOM.
Posted by: MP at October 15, 2009 08:40 AMAPPLE IS NEAR $200.THERE IS A QUESTION ABOUT THEIR ACCOUNTING METHODS. IS IT STILL A BUY AT THESE LEVELS?
Posted by: MP at October 20, 2009 10:27 AMSorry for the slow reply. Upon my return from Prague I had to go to NY.
I think Apple remains a buy and can work its way to $250-300 in a decent market. Non-GAAP EPS, which will be the only EPS shortly, could be $12 to $15 in 2010/11. a $20 P-E seems fair given the momentum in both Macs and iPhones and a still likely introduction of a tablet Mac. I think the December Q is going to be exceptionally good as iPhone, iPods, and Macs are going to be very popular Christmas gifts.
To be clear, there is no question about their accounting, merely a debate about whether the EPS should be based on deferring revenues of iPhones over two years (GAAP) or recognizing all the revenues (non-GAAP and how RIMM and NOK and MOT report).
Posted by: Steve at October 22, 2009 02:58 PM