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MARKET OVERVIEW
Index started week Thursday Close 4 day change 4 day change % ytd
DJIA 10452.46 10152.8 -299.66 -2.87% -2.66%
NASDAQ 2341.11 2217.42 -123.69 -5.28% -3.36%
RUSSELL 2000 673.12 633.17 -39.95 -5.94% 0.81%
S&P 500 1122.79 1073.69 -49.1 -4.37% -3.84%
Sector Talk
--Finance Sector Stocks
Below, we present various top-five lists for the Software and EDP Industry from
our Institutional software package (VEI). We included liquidity requirements of 100k
shares/day.
Top-Five Finance Sector Stocks--Short-Term Forecast Returns
Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
MTG MGIC INVT CORP WIS 7.9 146.32 113.51
PREFERRED BANK LOS
PFBC 2.2 -75 -44.16
ANGELES
EQR EQUITY RESIDENTIAL 42.95 -12.04 103.17
MAC MACERICH COMPANY 38.95 -24.59 134.64
CENTER FINANCIAL
CLFC 5.7 -56.39 117.56
CORPORATION
Top-Five Finance Sector Stocks--Long-Term Forecast Returns
Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
MTG MGIC INVT CORP WIS 7.9 146.32 113.51
PREFERRED BANK LOS
PFBC 2.2 -75 -44.16
ANGELES
EQR EQUITY RESIDENTIAL 42.95 -12.04 103.17
MAC MACERICH COMPANY 38.95 -24.59 134.64
CENTER FINANCIAL
CLFC 5.7 -56.39 117.56
CORPORATION
Click HERE or on the logo below to Sign Up for Chief Market Strategist Richard
Suttmeier's FREE Four-in-Four Daily Newsletter!
--Catching Up with TK Ng
Defining Alpha with Visual Finance
Former ValuEngine Analyst and Quant Guru Tk Ng published the following on his new
blog Technifundamentals this week. It has been edited for presentation in our
newsletter. The complete version--along with other content of interest, can be found
HERE.
Let's check out the results* for the MNS portfolio we created a few weeks ago:
Can we use visual finance to devise an algorithm of use for adjusting the
allocation of our strategy? Yes. We can use ValuEngine and our Viscovery SOMine
Software to create a Self-Organizing Map (SOM) that provides insights into the
market's possible direction and then adjust our portfolio accordingly.
*NOTE: Subscribers can run screens for the long sides of the benchmark portfolio
strategies HERE
Prior to overlaying on the SOM, each of our ValuEngine picks are labeled with
their benchmark strategy, the sector they belong to, and whether they are Long or
Short positions. The position of a label is approximately the position of the node on the
SOM that the stock occupies. The S&P500 component stocks are not labeled and the
empty spaces represent the nodes on the SOM that they occupy.
Here is our initial SOM:
Our SOM is composed of three natural clusters: S1-- the biggest cluster--
contains 66.33 % of our stock population and it is where most of the S&P500 stocks are
located. S2 contains 21.90 % of the stock population and is mostly occupied by our
ValuEngine short picks. S3 contains 17.77 % of the stock population and is mostly
occupied by our ValuEngine long selections.
To get a sense of the market's direction, we first look at the integrity of S2 and S3
clusters and their degree of dis-similarity with the market as represented by the
S&P500 (the data set from which our SOM is constructed). We do this by checking
out our SOM cluster statistics.
Here are our SOM stats:
Our stats provide an insight into the degree of dis-similarity between cluster S2
and S3 and the overall market. The degree of dis-similarity is measured by the length
of the bars on the bar chart which measures the deviation of the Mean of the cluster
from the Mean of the entire data set. S2 and S3 have relatively long bars as
compared with S1-- which contains most of the S&P500 component stocks. However,
S2-- which contains our short picks, is not a 'tight' homogeneous cluster and there are
big empty spaces in between individual equities.
On a SOM, this is an indication that the clustering is not 'strong' and thus S2 is not
a strong indicator of market direction--in this case bearishness since the cluster
contains the short picks. Cluster S3, which contains the L stocks, is also not a
distinctive, cohesive cluster. Other than an area at the top, S3 also has many empty
spaces. Thus it doesn't provide a strong signal either--thus it isn't bullish.
Suttmeier Says
--Commentary and Analysis from Chief
Market Strategist Richard Suttmeier
Treasury Yields
The $38 billion 5-Year note auction had a neutral result with
a yield of 1.995, a bid-to-cover of 2.58 and indirect bid of 35%. The
US Treasury auctioned $30 billion of 7-Year notes yesterday. The
30-Year fixed rate mortgage is at a record low of 4.76%, but
mortgage applications declined. The problem is that the spread
versus the 10-Year has widened to 166 basis points-- from 115
where it was when the Fed stopped buying mortgage securities on March 31st. A
4.25% mortgage would make it a lot easier to refinance mortgages.
The daily chart for the 10-Year shows the longer-term trading range between
the 200-day simple moving average at 3.544 and 3.061 with a daily pivot at 3.180,
and annual resistances at the floor at 2.999 and 2.813.
Commodities and Forex
Comex Gold--The daily chart shows declining technical momentum, but Monday’s
all time high of $1266.5 was a failed test of my monthly resistance at $1265.9. The 21-
day and 50-day simple moving averages provide key supports at $1228.4 and
$1201.3.
Nymex Crude--The daily chart still shows overbought technical momentum with oil
below its 50-day and 200-day simple moving averages and annual pivot at $77.05,
$77.04 and $77.05. The 21-day is support at $74.41. Today’s resistance is $79.91.
The Euro--The daily chart shows rising technical momentum as strength reached my
quarterly resistance at 1.2450 on Monday. The 21-day simple moving average is
support at 1.2208.
Major Indices
The Dow--
Daily: The 21-day simple moving average is support at 10,183 with the 200-day and
50-day simple moving averages at 10,350 and 10,556. My annual pivot has been a
magnet at 10,379. A close below the 21-day shifts the daily chart to negative as
technical momentum rolls over. My call remains that the April 26th high at 11,258
ended the bear market rally since March 2009, and starts the second leg of the multi-
year bear market.
New Home Sales Plunge as Tax Credits Expire - New Home Sales for May
plunged 32.7% to an annual rate of just 300,000 units, the lowest pace since record
keeping began in 1963. This should not be a surprise as 33% of new home sales were
generated because of tax credits, which expired on April 30th. Remember that
homebuilders peaked in share price in July 2005 and new home sales are down 78%
from that peak. Complicating a housing recovery is high unemployment, job security
and banks continue to employ tight credit conditions.
Can the NBER declare the Recession over with an unemployment rate of 9.7% when
the rate was 4.6% when it began?