Archive for 2018

Stocks and ETFs in Strong Uptrends Now in a Weak Market

Monday, March 5th, 2018
  • Small number of strongly up trending stocks shows weak overall market.
  • Less than 1% of ETFs are in strong up trends.
  • Less than 2% of S&P 1500 stocks are in strong up trends.
  • Few of the strongly up trending stocks and ETFs carry attractive analyst 12-month price estimates.
  • Most of the strongly up trending stocks have high valuation levels.

For our DIY investor readers, here is some preliminary screening research to give you something to chew on — maybe even find something you like.  This will save you some time if you are interested in strongly trending securities.

No recommendations here, just filter data that may or may not reveal an opportunity. That’s for you to decide.

We specifically used only tools available to the public to develop this list and supporting data, so you could find and use those information sources in the future.

We also provide the trend screening syntax we used, which could save you a bundle of time, if you decide to use it.

From the screening today, only 24 securities in either the S&P 1500 or non-leveraged, long-only ETFs survived a rigorous trend screening ( 1 ETF and 23 stocks).

The inverse of these results is that 1477 S&P 1500 stocks did not have up trends and liquidity as strong as our filter criteria specified; and over 2000 ETFs also did not pass the test.  Less than 2% of the S&P 1500 passed the filter, and less than 5% of 1% of ETFs passd the filter.  Overall, that suggests a very weak market.

This post provides:

  • The list of survivors
  • The screening criteria
  • Price performance charts for each security
  • Tabular return and valuation for each security
  • Short-term technical ratings for each security
  • Street consensus 12-mo price estimates for each security.

The Survivors:

AAXN Axon Enterprise, Inc.
ATVI Activision Blizzard Inc.
BF/B Brown-Forman Corp. – Class B
CRM, Inc.
DDS Dillards Inc
DIN Dine Brands Global, Inc.
HPE Hewlett Packard Enterprise Co.
IGV iShares North American Tech-Software ETF
KEYS Keysight Technologies Inc.
MKC McCormick & Co., Inc.
MKSI MKS Instruments, Inc.
MSCC Microsemi Corp.
NATI National Instruments Corp.
NFLX Netflix, Inc.
NKTR Nektar Therapeutics
OLLI Ollie’s Bargain Outlet Holdings Inc.
RHT Red Hat, Inc.
SNI Scripps Networks Interactive Inc.
ULTI The Ultimate Software Group, Inc.
WWE World Wrestling Entertainment, Inc.
X USX-US Steel Group, Inc.


(click images to enlarge)

The Screening Criteria:

(using advanced screening tool)

1-Year Daily Charts:



Returns and Valuation:

(from Morningstar)

Short-Term Technical Rating:


Note: Barchart technical ratings are for traders, and what they call long-term is still quite short-term for most investors.  They denominate in days, not months or years.


Street Consensus 12-Mo Price Estimates:



Good hunting!

S&P 500 Daily Price Change Frequency Distribution

Monday, January 29th, 2018

People are getting nervous about this late stage Bull market, so when the market opened down this morning and the S&P 500 reached negative 0.5%, I got a worried call about how significant that would be.

First, in and itself, as an isolated day price change, it really doesn’t have any particular significance, but in response I put together this frequency distribution of daily Close-to-Close price changes for the S&P 500 since January 2, 1964 (the beginning of my daily data); and also for the MSCI Emerging Markets stocks index from February 7, 1996 (and for the S&P 500 for the same period for comparison with emerging markets).

The short answer was that price change throughout the day for the S&P 500 has been between approximately the 20th and 30th percentile, based on 54 years of history (and between the same for 27 years of history).

The emerging markets, however, experienced larger drop varying between the 13th and 8th percentile; possibly showing greater sensitivity to the increase in US 10-year Treasury rates, or reaction to the currency management talk at Davos.

Here is the distribution in 5 percentile increments for the S&P 500 index and the MSCI Emerging Markets index, which you may find useful for future reference:

Related Securities: SPY, VOO, IVV, VFINX, EEM, VWO

Equity Reallocation Between US, Developed And Emerging Markets

Monday, January 8th, 2018
Within the equity allocation of portfolios, with tax awareness, we are taking these actions in discretionary accounts, and are recommending these actions in advice & consent accounts, and in coaching relationships:
  • Underweight US stocks (preferably to less than the 52% world weight)
  • Overweight non-US Developed Mkt stocks (preferably to more than the 39% world weight)
  • Overweight Emerging Mkt stocks (preferably to more than the 9% world weight)

We have been strongly overweight US stocks within the equity allocation for years, and that has been beneficial; but now evidence suggests that greater opportunity lies in other parts of the world.

A significant challenge we face is the pretty much across the board embedded gains in our stock positions.  Reallocation in tax deferred accounts is not a problem, but in regular taxable accounts, we need to understand the taxable gain preferences (and tax loss carry-forwards) of our clients versus their need to reallocate.

The following information supporting our view provides:

  • Comparative valuation measures for the three regions (US, non-US Developed and Emerging markets)
  • What is fair value of stocks today relative to bonds?
  • Recent and multi-year relative total return performance of the three regions versus the world index
  • Multi-period institutional forward return forecasts for the three regions
  • Net flow of funds to US and International/Global mutual funds and ETFs
  • Current short-term technical ratings for the three regions and the world
  • QVM intermediate-term trend ratings for the three regions and the world.


  • Price-to-Book Value Ratio
  • Price-to-Sales Ratio
  • Price-to-10yr Av Earnings Ratio (by Robert Shiller, Yale Economist, Nobel laureate)
  • Price-to-Highest Historical Earnings Ratio (by John Hussman, analyst and mutual fund manager)
  • Price-to-Total of Book Value and Debt (by James Tobin, deceased Yale Economist, Nobel laureate)

The short-story here is that by each measure, the US is the most expensive; non-US Developed markets are either somewhat less expensive or mostly significantly less expensive, and Emerging markets are significantly less expensive.  If we are seeking best relative value, and potentially least exposed to valuation contraction, regions with lower Price-to-Whatever ratios are generally more attractive.

The following comparative valuation measures were generated recently by Research Affiliates for their January article, ”CAPE Fear: Why CAPE Naysayers Are Wrong”. Valuations are compared between the regions and for each region relative to its own history.

Each of the following measures presents the current value inside of a “box and whiskers, explained by this image:

Price-to-Book Ratio: 

Price-to-Sales Ratio: 

Price-to-10yr Av Earnings:

This ratio (commonly called CAPE, for cyclically adjusted Price Earnings Ratio, where the adjustment is an inflation adjustment to historical earnings) was developed by Robert Shiller, Yale Economist, based on the idea published by Benjamin Graham many years ago.

Hussman P/E Ratio:

John Hussman divides the current price by the highest prior peak earnings, to present the lowest possible P/E (most favorable) based on actual historical results.

Tobin’s Q Ratio:

Tobin’s Q ratio, is the ratio of the market expressed value of a company (as measured by the market value of its outstanding stock plus debt) divided by the current replacement cost of the company’s assets (actual replacement cost is a complex determination, so for simplicity book value is often used for replacement cost, which typically overstates the true ratio, because book value is after depreciation and is not inflation adjusted — however in a time series for a single security, or between indexes, it is probably useful).


One expert to consult is Benjamin Graham (1894-1976), the acknowledged farther of value investing (as well as professor to and eventual employer of Warren Buffet).

He wrote the seminal books: “Security Analysis” (1934) with David Dodd, and the “Intelligent Investor” (1949) which Warren Buffet described as “the best book about investing ever written.”  I remember reading “Intelligent Investor” in the summer of 1968 while working trail crew on the Appalachian Trail between my Sophomore and Junior years in college.  It was my first exposure to investing ideas.  It was captivating then.

In “Common Sense Investing: The Papers of Benjamin Graham” (accessible here) he said:

“It seems logical to me that the earnings/price ratio of stocks generally should bear a relationship to bond interest rates.  …I should want the Dow or Standard & Poor’s to return an earnings yield of at least four- thirds that on AAA bonds to give them competitive attractiveness with bond investments.”

Today, AAA credit yields 3.47%.  Four thirds of that suggests an earnings yield is 4.63% (or a P/E ratio of 21.6).  Prospectively, with the Fed on course to raise short-term rates by 0.5% to 1.0% in 2018, it is reasonable to assume that the AAA yield will be higher than 3.47% at the end of 2018, and that an attractive earnings yield would be higher than 4.63% (a P/E lower than 21.6).

Today, according to Vanguard, the trailing P/E on each of the funds respresenting world stocks and three stock regions are:

  • World stocks (VT) P/E 18.9 (earnings yield 5.29%)
  • Total US stocks (VTI) P/E 22.7 (earnings yield 4.41%)
  • Large-Cap non-US Developed markets stocks (VEA) P/E 16.0 (earnings yield 6.25%)
  • Large-Cap Emerging markets stocks (VWO) P/E 14.8 (earnings yield 6.76%)

This is just one generalized way to look at fair value, but given the source, it is worth noting.  The US is somewhat expensive by this Graham metric.  The world and non-US developed markets are attractive.  Emerging markets are very attractive (and much more volatile – forecasted to be in the low 20’s versus mid-teens for US and non-US Developed markets).


Each chart shows cumulative returns for total world stocks (VT) versus the total US stock market (VTI) and the large-cap non-US Developed markets (VEA) and the large-cap Emerging markets (VWO).  The US has been the clear winner since the stock market bottom in March of 2009, but international markets have recently pulled ahead.  Since the US has stretched the valuation rubber band more than the other two regions, that suggests greater forward opportunity internationally.

3 Months cid:image020.png@01D387EF.3F0AC400

 1 Yearcid:image021.png@01D387EF.3F0AC400

 3 Years


 From the 2009 US Stock Market Bottomcid:image023.png@01D387EF.3F0AC400


The Net Flow of Funds to mutual funds and ETFs has favored international and global funds over US domestic funds over the past 3 years.  US domestic funds still outperformed international and global funds, but investor preference is clear in this chart.  Until international and global funds show signs of overvaluation, “follow the money” may be a good thing to do.


While institutions vary in the magnitude of multi-year forward annualized total returns, they are in essential agreement in forecasting Emerging markets being the highest return opportunity among the three regions ( with significantly higher volatility than in the US or non-US Developed markets).  US stocks are generally seen as offering the lowest returns.  Institutional forecasts are consistent with the pattern of Net Flow of Funds.


These ratings come from  In their parlance, “short-term” is in the vicinity of 20 days; “medium-term” is in the vicinity of 50 days; and “long-term” is in the vicinity of 100 days – all of which we view as short-term.


Our proprietary trend indicator is measured on a monthly basis over a period in excess of 1 year, and we believe indicates the intermediate trend condition.   A description of the measurement method  can be found here:

Note that while the world and all three regions are in strong positive up trend; but they are “running hot” and are “overbought” — suggesting a likely slowing or Correcting to cease being “overbought”.