Complimentary or Contradictory?

I would like to bring back the Investor scorecard today since it was just updated and point out some potential.  You will see, what may appear on the surface to be somewhat of a conundrum that really is not.

In the discussion the other day I talked about the Drug sector and more specifically biotechs noting that both the sector and the group fell into the underweight category. Today, looking at the investor scorecard for six months looking forward condition of RA (Piazzi’s Relative analysis) of outperform AND a scorecard reading of less than 50 I come up with only two candidates: Drugs (510), Specialty Retail (740).

The casual notice that has been made is that these two sectors will outperform over the next six months or so, yet the relative strength rate of change suggests an underweight position. While that may look like a conflict it is not necessarily so as they are different measurements covering different time frames. The RA analysis uses a shorter time frame.

Let us look at a chart with both indicators:

MG740First indicator box is Piazzi’s method. The lines are moving averages of the relative strength; Short 8 day (Red), Mid 21 day (Blue), and long 55 day (Green). Piazzi used the Kirkpatrick method of relative strength, that is the close divided by its 6 month moving average.. Each moving average cross led to a definition point, early outperforming (8 and 21) Outperforming (8 above 21 and 21 above 55).

The PT Relative strength on the other hand measures the sector against a total stock market index such as the Vanguard Total Stock Market. The line is then the 6 month rate of change of that measurement. In essence these two measurements are complimentary. They deal in different time frames is all. So you can have an outperform for the shorter term and yet and under perform or under weight using longer measures.

OK let us take a look at the industry groups within Specialty Retail from the Investor Scorecard:

mg740GroupsThere are seven industry groups within the Specialty Retail Sector. Two of the seven are rated Out perform and Over weight they are:

  • MG742 Toy & Hobby Stores Outperforming which contains only one stock (BBW Build-a-bear Workshop) and
  • MG744 Music & Video Stores Outperforming which contains but three stocks: HAST Hastings Entertainment, NFLX Netflix Inc, and TWMC Trans World Entertain Cp. In essence just one  😉
  • A third group MG747 Apparel Stores Outperforming is rated Underweight by the six month ROC.This industry group contains 38 companies.

Given the mixed picture this sector presents I would almost prefer to look for individual stocks within at this point in time. Although as the late Don Worden used to say most often just press the space bar (next). One should not attempt to force a trade. When in doubt – stay out.

Perhaps tomorrow I will look at the Drug Sector once again since the RA appears to be possibly an early warning for the Over weight assignment.

Talking Points and S&P 3000: Why Stocks Index Could Jump by 2020:

Report from Leen’s Lodge (David Kotok)
Charlie Munger’s Investing Principles (A Wealth of Common Sense)
U.S. Job Creation Holds at Six-Year High (Gallup)
Trend Model report card: August 2014 (Cam Hui)
How ‘short-termism’ is hurting the US economy, in 3 charts (AEI)
A Brain in Doubt Leaves It Out (Robert Seawright)
Money Chases Non-U.S. Real Estate at Record Rate in ETFs (Bloomberg)
The Percent of Companies Trading Above Book Value is the Highest Since 2007 (GaveCal)
What’s the Matter With Connecticut? (New York Mag)
Wild Emerging Market Statistics (Irrelevant Investor)
Learn from Your Analytics Failures (HBR)
Why Apple’s mobile-payments system might actually work (Quartz)
How Data Made Me a Believer in New York City’s Restaurant Grades (FiveThirtyEight)
8 facts that explain what’s wrong with American health care (Vox)
Wayfaring on CAPE’s Edge (Statistical Ideas)
Trader Who Scored $100 Million Payday Bets Shale Is Dud (Bloomberg)
As Robo-Advisers Gather Assets, the Model Remains Unproven (Institutional Investor)
The Strange Allure of Higher Fees (NY Times)

S&P 3000: Why Stocks Index Could Jump by 2020

Have a Great Day!