There are no changes to Northlake's Market Cap and Style models for November. The Market Cap model is sending a Mid Cap signal for the second consecutive week. The Style model has a Value reading for the fifth consecutive month.

Underlying trends in the Market Cap model show a continued shift toward large cap and away from small cap. However, while leaning toward large cap, the indicators remain mixed, so the signal remains on mid cap. Two indicators moved in favor of large caps this month. Both were technical/trend indicators, reflecting the weak performance of small cap stocks last month. More detail can be found below.

The market has spoiled investors over the past 7 months with one direction only: up. This Great Recession seems to turn into the Great Recovery. Are there any cheap growth stocks left for bargain-hunting investors?

I use following 8 criteria to select undervalued growth companies:

After 13 months flashing a Small Cap signal, Northlake's Market Cap model shifted to Mid Cap for October. I had anticipated this move after steady weakening of the small cap signal over the past several months. The new mid cap signal is a weak one and could shift back next month but the message is clear: the extreme conditions in place in the economy and credit markets have eased reducing the attractiveness of small caps as the play in a market and economic recovery.

As a result of the shift, all Northlake client positions in the Russell 2000 (IWM) dedicated to the model were sold and the proceeds were reinvested in the S&P 400 Mid Cap (MDY).

Studies have shown that asset allocation is the most important determinant factor in a mutual fund's performance: according to a study by Gary Brinson, Randolph Hood and Gilbert Beebower, asset allocation strategies are responsible for over 90% of variations in portfolio performance.

The tumultuous 2008 taught us an important lesson: static asset allocation over diversified assets is not effective enough to shield us from severe market loss. What's called for is tactical asset allocation which re-allocates capital based on the current and future economic and market conditions. In previous articles, we introduced several tactical asset allocation strategies including cross-asset momentum strategies. Those strategies are based on quantitative price or value evaluation. Another way is to simply follow the great investors' asset allocation decisions.

Last Friday (7/24/09), one ETF died and a new ETF was born. However, you won’t see these events in most ETF statistics because it was the same fund.

Claymore/Great Companies Large-Cap Growth Index ETF was launched on 4/3/07 under the ticker symbol XGC. The ETF did not perform very well. From inception through 11/24/08, its -58.5% return trailed far behind the -37.6% return of iShares Russell 1000 Growth Index Fund (IWF), a widely followed large cap growth benchmark.

There is no coincident data which is demonstrating this recession is over. Some may be at the bottom, others have a way to go. A summary of where we are......

2Q 2009 GDP Less Bad

The Federal Reserve seems to have shifted their publicity machinery into high gear this week, most likely taking the services of their new lobbyist for a test drive.

The obvious root cause of this publicity and self-proclaimed transparency campaign is the “audit the Fed” movement in Congress. They are in a public relations battle to be shown as the clowns wearing the white hat.

For the first time since February, there has been a change on Northlake's Core and Explore ETF models. The Style model has moved to Value after spending 5 months at Growth. The new Value signal is weak, just barley in Value territory on Northlake's 0 to 100 scale. However, five of the nine underlying indicators now favor value and a sixth is rated neutral. The trend toward value has been in place for several months so this move comes as little surprise.

As a result of the new signal, all client positions in the Russell 1000 Growth (IWF) were swapped into the Russell 1000 Value (IWD). The effect on client portfolios is to shift exposure from technology, health care and consumer sectors to financial services, utility, and energy sectors. The shift is anticipating a second half recovery in the economy that favorably impacts the more cyclical parts of the economy.

The 1920s and the 1990s both had stock market run ups that were linked to technological innovation and large increases in intangible capital. The dominant view in prior research is that the stock market increases of the 1920s were the result of speculation. An article published in the September 2008 issue of American Economic Review states that these increases were the results of new technology and intangible assets.

Liaquat Ahamed, author of Lords of Finance - The Bankers Who Broke the World, reveals in his book that the primary cause of the 1929 economic meltdown was the decisions taken by a small number of central bankers. Those bankers believed the greatest threat to capitalism was inflation, and the solution was to turn back the clock and return the world to the gold standard.

If you're wondering how broad-based the latest rally was, this post will highlight some of the sectors that are showing the most price momentum and strength in their up-trends.

We evaluate a selection of what I call "Benchmark ETFs" as proxies for various market sectors. The following list is based on daily data. All these ETFs are showing strong bullish readings for Aroon and DMI which we use to determine how strong a stock or ETF's trend is. In addition, these ETFs are all above their 20-day moving average.

There are no changes to Northlake's Market Cap and Style models for June. The signals remain small cap and growth. As a result, client positions in the Russell 2000 (IWM) and the Russell 1000 Growth (IWF) will be maintained.

The Market Cap and Style models provide monthly signals projecting relative performance of small cap vs. large cap and growth vs. value over the coming six months. Each model uses a combination of economic, interest rate, and stock market indicators that have historically shown predictive ability for identifying future relative performance of the market cap and style themes. The models use a weight of the evidence approach so that the signal generated is determined by the majority of the indicators.

There are no changes to Northlake's Market Cap and Style models for May. The signals continue to recommend small caps and growth. As a result, I will maintain positions in the Russell 2000 (IWM) and the Russell 1000 Growth (IWF).

There was no movement in the underlying factors of the Market Cap model. Eight of the ten factors continue to favor small caps with only valuation and bond momentum signaling large cap. The small cap signal actually got a bit stronger this month so much so that is certain to stay small cap at least another month (the current signal uses two month smoothing). The added signal strength emanates from the trend indicators which reflect April's incredible relative strength in small caps.

Yesterday we released our complete list of Exchange Traded Funds for the first quarter ending March 31, 2009. During the first quarter ETF and ETN assets totaled approximately $475 billion, down from the $541 billion at year end 2008, representing a 12% drop in assets. The number of issues also decreased from 845, to 839 during the same period.

Listed below are the ten largest ETFs by net assets, and the change since December 31, 2008. By analyzing the change in asset value, and performance of the fund over the quarter, you can start to see where investors’ money is flowing.

By Matthew Hougan

Think building an exchange-traded funds portfolio is complicated? It turns out you could do a lot worse than just buying the 10 biggest ETFs.

This past Friday, the Dow closed at 8017, its fourth consecutive week gain. Since the Dow set a 6,447 low on March 9th, it has rallied over 24% with heavy volume. Over the last 20 trading days since March 9, average daily volume was 7.2 billion, 16% higher than the average volume from January 1, 2009 until March 8, 2009 (Source: Yahoo Finance). Life is good. The general consensus is that the worst is over and we're seeing the start of a brand new bull market. But is it really?

As Harry Dent, New York Times bestselling author of The Roaring 2000s and The Next Great Bubble Boom, pointed out in his new book The Great Depression Ahead, the year 2009 will be the beginning of the next long-term depression and the initial end of prosperity in almost every market. He forecasted that the three massive bubbles that have been booming for the last few decades – stocks, real estate, and commodities – have all reached their peak and are deflating simultaneously. It is the perfect storm: the peak of Baby Boomer spending cycle collides with the oil and commodity in last 2009 – 2010. This coming depression will come not from this crash or even from the bursting of the commodity bubble, but from natural demographic and technology cycles that occurs every 80 years. He predicted that the Dow could hit as low as 3,800 in mid-2012. In other words, it could be down more than 50% from today’s level. If you use its all time high of 14,164, set on October 9, 2007, as a base, then the number could be 73%.

There were no changes this month to Northlake's Market Cap and Style models. The signals remain small cap and growth. As a result, within the index rotation portion of client portfolios, I will continue to hold positions in the Russell 2000 Small Cap Index (IWM) and the Russell 1000 Growth Index (IWF).

The small cap signal has been in place since September. For April, the signal is slightly stronger than it was in March due to an improvement in NYSE Monthly Breadth. Breadth improved dramatically last month as the market came off its lows. A breadth thrust of this nature has usually led to strong out performance for small cap stocks. Better breath is usually associated with rising markets and indicates that investor appetitive for risk has improved. Both these characteristics favor small cap stocks wit their higher volatility.

Pundits have been pounding the airwaves on the virtues of value investing. Get companies at low price-to-earnings ratios, clean balance sheets, higher-than-average dividend yields and lots of free cash flow. These folks believe that you need corporations with predictable income streams and steady profits to ride out the recessionary storm.

On the flip side, far fewer analysts have been telling you to buy growth stocks; typically, these are the companies with double-digit earnings growth prospects and may have lofty goals for new products and new services. Growth stocks are not supposed to fare as well in a recession, let alone the doom-n-gloom forecasts for a worldwide depression.

Investors pulled nearly $6 billion out of exchange-traded funds in February, the first time ETF fund flows have been negative in nearly a year.

The new data, compiled by the National Stock Exchange and published on Wednesday, reversed the strong trend seen in January 2009 and December 2008. That's when investors poured more than $80 billion into ETFs.

With traditional mutual funds expected to report billions of dollars in capital gains at year's end, investors face a double whammy.

Besides being forced to pay more in taxes, stock funds are producing double-digit losses in 2008. The broad Vanguard Total Stock Market ETF (NYSE: VTI) is down more than 38% so far.

Since first jumping into the exchange-traded funds market two-plus years ago with 20 dividend-weighted portfolios, WisdomTree Investments has firmly been cast as a value-styled management shop.

That focus on weighting index-based ETF portfolios on business fundamentals—rather than traditional market-cap size figures—hasn't changed. But the New York-based firm launched Thursday an ETF focused squarely on large-cap growth stocks.