Mike
07-18-2016, 10:10 AM
I find Pascal's comments about the Central Bank NIRP policy outweighing the drop in US earnings and reduction of margin debt particularly compelling. The question for investors is how long this effect will last? We truly are the market of last resort. Also, historical methods of estimating market tops are broken.
What would change the current market situation?
US NIRP
US recession
Major war
None of this will likely happen immediately. As we move into earnings season, the market might begin to sense recessionary pressure. So, it is entirely possible that the rally will have legs.
Watchlists in the High Growth Stock area are updated. I don't recommend taking the short positions. I always produce long and short watchlists; this helps me understand which side of the market is predominant.
I am in the process of changing stock selection methods after Harry Friebel on this forum produced a study that looked at the correlation of subsequent stock price escalation vs. fundamentals before the price move. These studies are difficult to perform because one has to have Fundamental historical data. Harry leveraged IBD data that I have been saving since 2011. The surprise for me was that Industry Group Relative Strength had little correlation with a subsequent price increase. What does work is counting the number of stocks making a new 52-week high in each industry group. Also, ROE and pre-tax margin seem not to correlate with a subsequent price increase, at least over the last five years.
So, what Industry Groups have a significant number of stocks making a 52-week high?
Here is my list (with the number of stocks in each group at a 52-week high).
Finance-ETF/ETN (131)
Finance-Property REIT (15)
Banks-Northeast (9)
Mining-Gold/Silver Gems (8)
Banks-Southeast (6)
Finance-Investment Management (6)
Banks-Foreign (4)
Chemicals-Specialty (4)
Medical-Products (4)
When I inspect the ETF/ETN group I find precious metal ETFs dominate. You have to go to the bottom of this list to find an industry group that might contain a traditional growth stock. This list of leading industry groups supports Pascal's observation that money is chasing Yield.
What would change the current market situation?
US NIRP
US recession
Major war
None of this will likely happen immediately. As we move into earnings season, the market might begin to sense recessionary pressure. So, it is entirely possible that the rally will have legs.
Watchlists in the High Growth Stock area are updated. I don't recommend taking the short positions. I always produce long and short watchlists; this helps me understand which side of the market is predominant.
I am in the process of changing stock selection methods after Harry Friebel on this forum produced a study that looked at the correlation of subsequent stock price escalation vs. fundamentals before the price move. These studies are difficult to perform because one has to have Fundamental historical data. Harry leveraged IBD data that I have been saving since 2011. The surprise for me was that Industry Group Relative Strength had little correlation with a subsequent price increase. What does work is counting the number of stocks making a new 52-week high in each industry group. Also, ROE and pre-tax margin seem not to correlate with a subsequent price increase, at least over the last five years.
So, what Industry Groups have a significant number of stocks making a 52-week high?
Here is my list (with the number of stocks in each group at a 52-week high).
Finance-ETF/ETN (131)
Finance-Property REIT (15)
Banks-Northeast (9)
Mining-Gold/Silver Gems (8)
Banks-Southeast (6)
Finance-Investment Management (6)
Banks-Foreign (4)
Chemicals-Specialty (4)
Medical-Products (4)
When I inspect the ETF/ETN group I find precious metal ETFs dominate. You have to go to the bottom of this list to find an industry group that might contain a traditional growth stock. This list of leading industry groups supports Pascal's observation that money is chasing Yield.