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September 06, 2006
September 2006 Model Signals
After seven months signaling value, Northlake’s Style model shifted to growth for September. There were no changes in any of the underlying factors this month. Rather, the two month rolling average calculation shifted to growth when June’s value bias was dropped and August data confirmed the shift to growth first picked up in July. As a result of the new growth signal, I sold all client positions in the Russell 1000 Value Index (IWD) and the Russell 3000 Value (IWW) and swapped dollar for dollar into the Russell 1000 Growth Index (IWF).
There were no changes to Northlake’s Market Cap model for September, which for the third consecutive month is providing a large cap signal. The large cap signal remains strong and accounts for the use of the large cap Russell 1000 in the implementation of the new Style signal.....
For September, five of the nine factors that make up the Style model favored growth, making it two straight months with a majority for growth. As recently as June, only three of the nine factors in the Style model favored growth. The shift to a growth signal is being driven by factors picking up slowing economic growth, a weak dollar, cheap relative valuation, better technical action for growth stocks, and unusually narrow credit spreads. While I never second guess the models, I personally concur with the slowing growth scenario so this shift is comfortable for me.
I should note that the growth signal is a weak one at the moment. The movement of just a single factor next month could shift the model back to value mode. While that could happen, the average length of a signal from this model has been seven months based on backtesting to 1980.
By coincidence, the prior value signal was in place for seven months, and it proved to be a very accurate signal. Looking at the Russell Growth and Value ETFs, from February thru August, the Russell 3000 Value (IWW) gained 5.5% against a loss of 2.2% for the Russell 3000 Growth (IWZ). The story was the same in the narrower indices as the Russell 1000 Value (IWD) gained 5.9% against a loss of 1.7% for the Russell 1000 Growth (IWF) and the Russell 2000 Value (IWN) gained 3.6% against a loss of 5.1% for the Russell 2000 Growth (IWO). Northlake’s benchmark is the S&P 500, which gained 2.5% during this same period, so no matter how it was implemented the value signal proved to be a good one.
Posted by Steve Birenberg at September 6, 2006 10:03 AM in Models
IS ANYTHING GOING ON WITH NTLI AND/OR CETV?
NTLI APPEARS TO BE DISAPPOINTING ONCE AGAIN, WITH A DEAL SEEMINGLY IMMINENT BUT WITH THE DEAL STOPPED BY LARGE STOCK HOLDERS.IS IT STILL WORTHWHILE TO HOLD ON TO NTLI STOCK?
I wouldn't interpret silence from NTLI as disappointment. In fact, I think the silence indicates that real discussions are going on. No guarantees but I am definetley holding on as I figure if a deal falls through management may throw a bone in terms of share buyback or dividend limiting the downside to $23-24 while theupside is $32-34. Seems like a good risk to me.
As for CETV I haveheard nothing since the Apax announcement. Meeting in NY is two weeks from tomorrow and shouldbe positive.
Posted by: steve at September 6, 2006 01:26 PMING FEELS THAT CETV'S PROBLEM WITH THE CZECH COURTS WILL TAKE A LONG TIME TO SETTLE AND WILL KEEP CETV'S STOCK PRICE DOWN IN THE MEANTIME. DO YOU AGREE?
Posted by: MP at September 11, 2006 07:34 AMI have not seen the ING report but if the issue concerns the rollout of digital TV in the Czech Republic I don't see that as a problem. In the short-term, the renewed litigation is actually a positive as it delays the rollout of new stations that could take viewers from Nova. Digital TV was not going to rollout before 2009 anyhow and now it looks like 2010 or later. Consequently, I have viewed this a sideshow relative to CETV's stock price over the next year.
If you have a copy of the report, send it along via email and I'll comment further if necessary.
CETV's stock price will continue to be driven by the overall market trend, particularly in emerging markets, and by the company's success in meeting its financial targets. A good market and hitting targets will easily lead the stock to new highs in the next year.
Posted by: Steve at September 11, 2006 07:48 AM