Most of the stocks I own did just fine last week but all it takes is one big loser to spoil the party. OMN reported disappointing earnings and the stock tanked about 17% over the next two or three days. That, along with my short position in the Russell 2000 was enough to turn my performance negative. Interestingly, OMN did not fall off my screen - it actually moved higher. So, at least for now, I continue to hold it. Nothing is new as far as the market is concerned. Valuation is horrible while sentiment is neutral and earnings expectations are still positive. I continue to maintain a fully hedged position.
Although the S & P 500 managed a small gain last week there were almost 1000 more declines than advances on the NYSE. Fortunately, my portfolio did well because of some nice moves like AWRE (a very interesting new holding that was up 7.2%), IIIN, DTLK, TTMI and FLXS(all up 6+%). There is no change in my model's components. Valuation remains the primary problem and is the main reason that I continue to maintain a fully hedged portfolio. Sentiment improved a bit last week as some small investors and speculators moved away from their very bullish expectations. They have a long way to go, though, before they are bearish and scared.
This is a three year chart of my model screen compared to the Russell 2000. Last week was a rough one as I only owned one stock that actually increased in value, NUTR. That stock remains very highly ranked in my system. Fortunately, I was completely hedged and had little change in the value of my portfolio last week. I am going to continue that stance because last week's decline was not enough to move my valuation indicator out of its most negative position. The change in the unemployment rate is also negative but earnings estimates are still in an increasing trend and sentiment is still neutral. It is going to take additional weakness to motivate me to take off my hedges.
This is a five year chart of my 20 stock screen compared to the Russell 2000. When leverage is above one, I am hedged. Currently and for many weeks I have been in a hedged position but the strength of my screen has enabled good results anyway. I am hedged because economic indicators like change in the unemployment rate are negative and valuation remains very negative. Earnings expectations are still OK and sentiment is neutral. My current holdings and buy list are shown at the Stock Screen tab.
Richard Moore, CFA
With my wife in Hawaii