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February 01, 2012
Small Cap Back in Favor
For the first time in 13 months, Northlake’s Market Cap model has a new signal. Beginning February, 2012, the model favors small cap. As a result, Northlake client holdings dedicated to the model have sold the S&P 400 Mid Cap (MDY) and proceeds were reinvested into the Russell 2000 (IWM). There were no changes to the Style model, which continues to strongly favor growth. Positions in the Russell 1000 Growth (IWF) will be maintained for at least another month.
As is often the case when the model signal shifts, the new small cap reading is a weak one. Bear in mind that there is often volatility in the signals as they transition so a shift back to mid cap next month is possible. However, barring a significant market setback that impacts the technical indicators, I do not expect that to occur.
The shift to small cap is primarily the result of the same technical indicators. Several months of a strong market rally has been led by small caps. The expanding breadth of the rally generally portends more rally lies ahead and continued strength for small cap stocks. The model also reflects improving U.S. economic performance. Small caps generally do well in the early stages of economic expansions as investors look to be more aggressive and corporate profits improve.
The expired mid cap signal did not produce excess performance but did not meaningfully lag the market. Over the 13 months, MDY gained 3.7% against an increase of 4.4% for the S&P 500.
Looking just at January 2012, the mid cap signal performed well, with MDY up 6.6% against a gain of 4.5% for the S&P 500. The Style model is also off to a good start in 2012. Growth was up 6.1% last month against 3.9% for value. After struggling in 2011, it is good to see the models on track again.
Disclosure: IWM and IWF are widely held by clients of Northlake Capital Management, LLC. MDY is held in select Northlake client accounts. Steve is sole proprietor of Northlake, an SEC registered investment advisor. IWM is a net short position in the Entermedia Funds. Entermedia is a long/short equity hedge fund focused on media, communications, and related technologies. Steve is co-portfolio manager of Entermedia, owns a stake in the funds’ investment management company, and has personal monies invested in the Funds.
Posted by Steve Birenberg at February 1, 2012 01:16 PM in Models
1.why is cetv going up so fast-macro effect or are earnings going to improve
2.acom is doing well prior to new shows
2.what do you think of lbtya ,goog ,aapl at these levels?
Not sure on CETV but it went down fast as the euro headed toward 1.27. Now the euro is more like 1.32 giving CETV some breathing room. Also, there are some assets in Turkey for sale and attracting attention from TWX and others. That might behelping.
Not following ACOM closley. IT usually does well ahead of and during the show. Also still lots of shorts so it gets momentum that pushes it higher.
LBTYA is $48-50 target. I'll trim there but it can go alot higher long-term Less Europe issues is bullish.
GOOG remaisn very cheap. One good quarter and it will be back to $650 or higher. I also think the Facebook IPO will help Google as people will relaize that Google is way too cheap.
Apple belongs north of $500. Not much more to say. Only issue there is it is owned by everyone so where do the incremental buyers come from.
I'll be in the car all day tomorrow. Give me a call when you are free and we can catch up.
Posted by: Steve at February 2, 2012 02:26 PMMILLICOM IS SOFT PRIOR TO EARNINGS. DO YOU EXPECT SUBOPTIMAL REPORT?
Posted by: MP at February 6, 2012 03:13 PMAs I noted last week, I have no info or edge in Millicom. The market is saying the report will be weak. But most all emerging markets wireless stocks are weak. I am placing my trust is Millicom's usually reliable management team and the long-term value that exists in the assets. Basically, I am worried but have my fingers crossed.
Posted by: Steve at February 6, 2012 03:18 PMWHAT DO THINK OF MILLICOM EARNINGS?
Posted by: MP at February 8, 2012 09:10 AM