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February 03, 2014

Models Unchanged for February: Still Like Mid Cap and Value

There were no changes to the signals from Northlake’s Market Cap and Style models for February. The Market Cap model continues to favor mid cap and the Style model still recommends value. With no changes to the signals for this month, Northlake client positions in the S&P 400 Mid Cap (MDY) and Russell 1000 Value (IWD) will be held for at least another month.

Underlying movement in each model was modest. The Market Cap model remains on a somewhat weak mid cap signal. It is a little stronger this month as the advisory service sentiment indicator shifted toward large cap. This occurred because bullish sentiment reversed slightly from extreme levels. A reversal from extremes often indicates a shift in market momentum. In this case, coming off very bullish levels is a bearish signal, so the advisory service indicator shifted to less volatile large caps.

The value signal on the Style model strengthened this month as the U.S. dollar indicator shifted to value. The dollar has strengthened vs. most currencies over the past month due to turmoil in emerging markets. Value stocks are less sensitive to dollar movements than growth stocks as growth stocks are more reliant on overseas growth and thus get hurt when the dollar strengthens in terms of competitiveness and currency translation.

During January, the models put in a decent performance. Mid cap was a good call as MDY fell just over 2% while the S&P 500 fell over 3%. Value/IWD did slightly worse than growth last month but performed in line with the S&P 500.

MDY and IWD are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg's personal accounts. Steve is sole proprietor of Northlake, a registered investment advisor. Regulatory filings can be found at www.sec.gov.

Posted by Steve Birenberg at February 3, 2014 09:43 AM in Models