The Portfolio Barometer
This article continues the weekly update on market conditions based on the types of portfolios that are outperforming or absent from the list of top-performing stocks. Portfolio strategies may experience the same autocorrelation that sustains strong price movements among momentum stocks, both positively and negatively. Using an inductive portfolio model approach that goes where the types of returns in the market are strongest, I monitor different fundamental, value, momentum, forensic, and anomaly portfolios from financial research to create a portfolio barometer.
I also use this inductive portfolio approach to select the 20 active stocks in the Premium Portfolio from my membership service that draws from a wide range of different models in the financial literature.
The top gains this week across all the portfolio types appear to be very equally diversified, suggesting a strong broad market rally that we have not seen in a long time. Through the early part of 2019, the rally has been led almost exclusively by the momentum breakout portfolios. This article also expands on last week's results as to what these signals may mean for short-term trading:
This list forms a type of market barometer you can also use to signal stronger portfolio strategies that are working best and identify key changes in the market. It also shows a very good list of potential breakout stocks active in winning portfolios for you to consider.
|Weekly - Top Performing Stocks from all the Active Portfolios|
|Forensic Negative Portfolio - October 2018||(ADMA)||6.26%||46.93%||19.71%||4.07|
|Forensic Negative Portfolio - December 2018||ADMA||6.26%||46.93%||19.71%||4.07|
|Breakout Stock Week 1.2018||ADMA||6.54%||46.93%||19.71%||4.07|
|Russell 3000 Top 20 - July 2018||ADMA||6.54%||46.93%||19.71%||4.07|
|Forensic Negative Portfolio - August 2017||(NTN)||6.67%||26.48%||-7.51%||3.20|
|Breakout Stock Week 36.2018||(ADRO)||7.88%||19.10%||42.50%||3.99|
|Piotroski-Graham portfolio - November 2018||(RUSHB)||3.64%||18.98%||15.45%||44.32|
|Breakout Stock Week 21.2018||(HPR)||4.14%||18.88%||-13.44%||2.77|
|Forensic Negative Portfolio - September 2017||(LLEX)||5.53%||17.98%||17.98%||2.10|
|Breakout Stock Week 22.2018||(SYRS)||5.06%||15.51%||5.06%||6.85|
|Breakout Stock Week 41.2018||(SJT)||12.76%||14.75%||1.45%||4.90|
|Breakout Stock Week 18.2018||(WETF)||4.13%||14.74%||1.63%||6.85|
|Forensic Negative Portfolio - September 2017||(ACRX)||8.17%||14.34%||22.13%||2.87|
|Breakout Stock Week 50.2018||ACRX||8.17%||14.34%||22.13%||2.87|
|Breakout Stock Week 16.2018||(ESTE)||5.07%||13.31%||-4.43%||6.47|
|Breakout Stock Week 36.2018||(CYTK)||4.59%||13.05%||13.21%||7.97|
|Breakout Stock Week 25.2018||CYTK||4.59%||13.05%||13.21%||7.97|
|Breakout Stock Week 18.2018||CYTK||4.59%||13.05%||13.21%||7.97|
|Breakout Stock Week 9.2018||(OAS)||4.48%||12.86%||-4.74%||6.23|
|Breakout Stock Week 31.2018||(OTC:FSNN)||11.23%||12.43%||13.66%||2.08|
|Breakout Stock Week 35.2018||(CDMO)||7.82%||12.36%||-6.10%||4.00|
|Breakout Stock Week 16.2018||CDMO||7.82%||12.36%||-6.10%||4.00|
|Russell 3000 Top 10 - July 2018||CDMO||7.82%||12.36%||-6.10%||4.00|
|Russell 3000 Top 20 - July 2018||CDMO||7.82%||12.36%||-6.10%||4.00|
|Breakout Stock Week 46.2018||(PDFS)||7.47%||12.30%||20.67%||11.50|
|Piotroski-Graham portfolio - January 2018||(REI)||3.95%||11.82%||2.76%||6.34|
|Breakout Stock Week 25.2018||(AIRG)||9.53%||11.27%||0.79%||11.55|
|Piotroski-Graham portfolio - May 2018||(BWA)||3.44%||10.08%||6.33%||42.14|
|Piotroski-Graham portfolio - March 2018||BWA||3.44%||10.08%||6.33%||42.14|
|Piotroski-Graham portfolio - May 2018||(WOW)||4.46%||10.00%||8.17%||8.47|
|Bounce-Lag Momentum Week 46.2018||(DIN)||2.37%||9.81%||12.66%||88.45|
|Piotroski-Graham portfolio - May 2018||(VHI)||3.73%||9.48%||3.40%||3.35|
|Piotroski-Graham portfolio - March 2018||VHI||3.73%||9.48%||3.40%||3.35|
|Breakout Stock Week 12.2018||(GNMK)||5.11%||9.47%||6.18%||6.36|
|Forensic Positive Portfolio - July 2017||(ONCE)||3.01%||9.42%||19.28%||51.91|
|Breakout Stock Week 37.2018||(TTOO)||5.37%||9.36%||0.54%||3.74|
|Breakout Stock Week 45.2018||(CBIO)||7.13%||8.56%||9.49%||9.00|
|Breakout Stock Week 7.2018||(SPAR)||4.69%||8.42%||6.18%||8.76|
|Forensic Positive Portfolio - August 2018||(RAIL)||3.64%||8.28%||7.85%||8.24|
|Forensic Positive Portfolio - June 2018||RAIL||3.64%||8.28%||7.85%||8.24|
28 stocks listed above from different active portfolios have delivered better than 8% this past week (through the writing of this article). The diversity of the list in stark contrast to prior weekly barometer articles tells me that many different algorithms are working well during a broad-based rally.
This may reflect a significant improvement in market health to a better focus on fundamentals and value where outperforming returns have been more highly correlated in the past. My ongoing barometer, based on the chi-square statistical tests conducted on 2018 key performance variables, continues to show that momentum models have been more dominant under current conditions. Perhaps that is starting to change with a very different mix of top-performing stocks than in recent weeks. Detailed descriptions of each of the portfolio types are available in the links in the table and in the explanation of the table in the section below.
The S&P 500 has cleared the 2,700 key resistance level and even moved above the 200-day moving average level earlier today. The next level of expected resistance is around the 2,800 level that served as market tops from Oct-Dec last year.
Market conditions have reversed significantly from the prior week outlooks where the negative momentum nearly crossed above the positive value in a much more bearish market outlook. This week on the heels of avoiding another government shutdown and improved dialogue in the China trade talks, the macroeconomic conditions may be contributing to current record highs in the positive momentum.
Today, even before the close, we have reached the highest levels in positive momentum measured on my gauge chart since early 2018. This is a very positive sign of capital inflows and investor confidence. The list of stocks in the barometer of portfolios shows that a wide range of algorithms and portfolio strategies are participating in this broad rally.
Explaining the Table of Stocks by Portfolio
First, the stocks from portfolios highlighted in yellow are classified as momentum-based stock selections. These are stocks that have strong characteristics of high volatility, money flow, strong positive technical signals, and an increasing level of positive sentiment building for momentum gains. They are not necessarily good value or fundamentals-based stocks, but ones expected to deliver quick short-term gains over regular periods as their technical parameters move through optimal trading ranges.
Second, the stocks from portfolios highlighted in green come from the Forensic Negative portfolios with generally accepted negative fundamental characteristics. These stocks score poorly on three academic forensic models covering 22 different financial ratios and criteria.
My working theory is that stocks that achieve high adverse scores on all three forensic algorithms may be much more dependent on momentum and investor sentiment for price performance than on fundamental financial performance. This dependency on weaker fundamental financial data makes the firms more susceptible to larger price fluctuations and potentially lower annual returns.
Third, the stocks from portfolios highlighted in red come from the different Russell Index Anomaly portfolios that try to exploit the annual index reconstitution effects documented in the literature. These stocks by design are small- to mid-cap stocks with potential for high momentum volatility, but not necessarily selected for momentum characteristics over fundamental and value-based criteria.
Fourth, the Piotroski-Graham enhanced portfolios in gray leverage one of the top value portfolios known to outperform many other value portfolios in published studies. The Graham enhancement and other modifications make this a top-performing portfolio for long-term buy/hold stock portfolios.
Lastly, the Forensic Positive portfolios shown in blue represent the best fundamental scores from three different forensic algorithms that apply 22 different financial tests. Potentially these strong financial characteristics produce strong long-term value returns in buy/hold models that I am testing.
This list is not the entirely comprehensive list from my top stock tracking board, but represents the top stocks through this point in time today.
These results following on last week's article support the continuation of momentum and technical models to generate more positive returns in the short term. Also Seeking Alpha recently released a new feature that lets you monitor your own stock's momentum here.
I will provide another update on this barometer later next week to see what changes in top-performing stocks and portfolio types are delivering gains into a very volatile market.
All the best!
JD Henning, PhD, MBA, CFE, CAMS
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.