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Wednesday, March 10, 2010
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Hardcopy Research: last shipped March 3, 2010
Online Research:
Strategist updated a/o 03/03/2010
Workbook updated a/o 03/05/2010
File Downloads Weekly >> updated a/o 03/05/2010
File Downloads Monthly >> updated a/o 03/01/2010

Media: 01/23/2009: Equity Research Performance in 2008

10/27/2008: The Stocks That Survived 1929

 

 

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MONTHLY RESEARCH:   The Monthly Research for March was run over the weekend of February 27th, 2010, based on the data close out of Friday, February 26th. Your specific data was pushed to you on Sunday, February 28th.  The WEB site data (Workbook section) were be available Sunday and the refreshed data applied to the Probability Plots, Screening features, and download files in the monthly File DownLoad section. The Strategy notebook should arrive on Thursday, March 4th. If you have not received your files, or the notebook by the dates indicated, please contact us. Call 239-948-0101 if you wish to schedule a conference call in January.

WEEKLY RESEARCH:  Weekly Insider Data and Commentary files were updated on Saturday, March 6th with data from the Friday, March 5th, SEC closeout. The Insider portion of the Workbook section of the WebSite was populated with the new weekly data on Saturday and Sunday as well.  Both of the e-mailed files on Insider behavior (Data for all companies, and Commentary) were pushed to you on Saturday or Sunday.  (See the Insider Commentary from the past weekend for a sense of the change, including longer-term implications for price direction of the broad market, and for Industries and Economic Sectors.)

GENERAL COMMENTARY:  Style was tilted modestly toward Growth in February. The Capitalization component was modestly in favor of Small-cap as anticipated at the end of January. MPT Model performance was again strong - led by the Earnings and Summary Models, and Acceleration as well as Good Probability Plot Scores. This includes the fact that in our important benchmark model,  Summary Best again outperformed Summary Worst.  As expected, the Earnings model, applied to individual companies, performed very-well in February, following an anticipated signal last month that the cyclical component had turned up. This should extend through at least the end of Q1. The Insider Model, while doing very well in 2009, continues to slow in terms of performance - in particular at the extremes (Deciles 10 and 1).  Note the unusually positive change in one of our models expressed in the Commentary you received this past weekend.

The top-down, monthly Earnings model data continue to suggest that the cyclical bottom has passed, and that the Economy, as measured by earnings momentum, probably bottomed in November of '08. The Top Line Earnings Growth trend needed to improve, and after a review of the Q3, and now the Q4 reports, it appears to have done so. Bottom Line Expectations have far exceeded expectations as well. Computing/Technology is showing the best improvement, and there has been a reversal to the positive in an Economic Sector we have viewed recently as negative. (See the Weekly Insider Commentary report for details.)

We see the Market Cycle, in terms of MPT's "Market Clock," as fully engaged with the 6 o'clock position. From here, (with interim pauses for improvement such as the one we expected in December-January), the Insider model will gradually become less useful, and the Earnings model more important. However for now, Earnings combined with Insider screens should still work - just not as dynamically as they did in 2009.  Market leadership will narrow from this point in the larger cycle, with Price and Earnings Momentum driving performance after we pass 6. We therefore suggest that the Technical and Earnings Models should continue to do well in terms of producing positive alpha. There has been, as expected, a significant correct of 9-10% from the highs in January. We believe this period of consolidation is almost over.  The Advance/Decline Line continues to perform well - even into the recent correction in prices -  suggesting that further gains in the Equity Markets lie ahead. The anticipated very "messy" and "choppy" January-February period is over, and it met expectations. At present, we would view this as a longer-term buying opportunity in the "Mark-up" phase of an Equity cycle.

We have moved into a period, following broad-market earnings expectations and surprise improvement, where the equity selection process needs to change focus - from acceleration, (in the MPT Earnings model) - to Market-relative scores, with an emphasis on the extreme tails, (deciles 10 and 1). Outcomes at these extremes should be combined with companies showing good Market and Self-relative Insider Model scores. At this juncture, review of Self-relative Insider scores (using the Probability Plots) will be particularly important when making selections from more "Growthy" Sectors/Industries such as Technology.

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Welcome to MPTonline.com

MPTonline.com is the web-based application for professional investors. Market Profile Theorems, Inc. has been a provider of Behavioral Financial models, integrating Insider, Earnings, Technical and Style aspects, for 20-years. The behavioral approach to equity selection provided by MPT adds unique insights to the equity selection process, and compliments more traditional fundamental tools. Coverage includes over 5000 U.S. companies, with aggregated views on 16 Economic Sectors and 59 Industries. In this way the work is useful for both "bottom-up" and "top-down" applications - serving as a broad strategy tool.

The newest features are designed to improve the decision-making process for our clients. One example of this is our presentation of the 4 basic MPT models, (Insider, Earnings, Technical, and Summary), in the context of a probability matrix defined by past model scores for each Company, Industry, and Sector we monitor. Another addition is the color-coded 28-month time series for each model - revealing significant changes in each model at a glance. A more specific description of the concept, methodology, and use of the various behavioral perspectives we provide, can be found by clicking on the individual tabs for each model found at the top of this page. The underlying data and graphics are available only to subscribers to MPT research.

One interesting subset of Behavioral Finance is found in the analysis of Corporate Insider behavior. While in and of itself Insider activity can be useful in adding to the decision making process, it can also be thought of as the initial starting point in a decision tree of information which includes other important inputs. Among these are: Analyst Behavior, and Relative Price Strength provided by the market trading mechanism itself.

Behavioral Finance & Corporate Insider activity – Point of Departure. At Market Profile Theorems we use Behavioral Theory in a sequential "waterfall" manner – looking for confirmation of positive events at the Insider level (Market or Self-relative), from the analyst community, or in price movement itself. Positive or negative events at the initial, Insider level, of analysis can manifest themselves in terms of “Change”, and “Out of Range Behavior”.

The MPT model of Insider Behavior is a 7-factor model - incorporating finely tuned weightings for: Selling and Buying; Transaction size; Transaction date relative to current; Options-related transactions; Historical company behavior; Insider position and; Initial transactions - is not a retro-fitted theoretical model, but has been produced "live" and used by the professional money management community for 18 years. Past performance spreads - between companies ranked best and those ranked worst – have clearly been positive over the period the research has been live.

An interesting corollary to the theory is found in the aggregation of Insider behavior by Industry or Economic Sector. The advantage of cumulative data points amongst aggregation of like-companies provides additional statistical confidence in the behavior observed in this Insider model of robust design. In this approach, Analyst and Market pricing behavior is also aggregated in order to develop a sense of the larger picture.

The following graphic (Model Scores) provides a picture of change in MPT Earnings, Insider, Technical and Summary model scores over the past 28 months, with the most recent data point (January 26th 2007) to the right. The Yellow squares reflect the most positive scores in the key models, with Black signifying the most negative conditions. Color gradients from Dark Green to Gray are included. Numeric scores are provided as well. These plots are available for our coverage universe of over 5,000 Companies - which values are aggregated upward through 16 Economic Sectors, and 59 Industry Groups.

Probability Plots, and the Informational Hierarchy. It is one thing to have access to information; another to model it in a cohesive, and actionable manner; and yet another to actually “see” the data in a meaningful context. The graphic provided by the MPT Probability Plot allows visualization of not only Market Relative and Self Relative behavior, but of the interaction of a given set of related behavioral inputs as well.

The following graphic illustrates these points. To orient you, the view reveals scores for 4-MPT Behavioral model inputs: Insider (I), Earnings (E), Relative Price Strength (T); and Summary (S) - (the latter combining all models into one).

The highest scores for each model are located at the outside of each model arm and the lowest to the middle. The shaded areas represent the “normal” range for each model. The red dot reveals the current model score for each variable. A score toward the center, white area, indicates out of range behavior in a negative direction. Think of the connections between current values for all four models as creating the red, shaded overlay on the normalized outcomes. Using this view, one is able to instantly ascertain the condition of the company, industry or sector relative to both other companies, and to itself.

Another feature provided by this view, is that of interaction amongst the various behavioral models. In the MPT view, and after working with this concept for 20 years, we have found that the information flow moves from the Insider signal through Earnings, and is then expressed in a market pricing response. The arrow in the graphic illustrates this flow. Another term we use is that of a “Behavioral Market Clock” , with the Insider input located at the starting, 12 O’clock postion. (The behavioral flow need not be through the Earnings/Analyst node and can be expressed directly in terms of price performance.) An adequate Insider "signal" should cause the practitioner to begin focusing on earnings revisions for signs of movement in the same direction implied by Insider behavior. Managers basing their investment decisions on Value or GAARP should be particularly interested in this type of modeling, as it has the potential for improving the timing of longer-term entry and exit points.

Using this approach to the concept of a “Market Clock”, and beginning with Insider change, by the time the model score improvement gets around to the Summary model (S), all models have kicked into gear - followers of Insider behavior, Earnings models (revisions and surprise), and Price Momentum, are all “on-board” - and the share price has accelerated significantly.

In the final analysis, the basis for our work is founded on the principle that in a well-designed model, Corporate Insiders – whether by action or inaction – buying or selling – provide initial clues as to how they perceive the relative attractiveness of their own company shares. Those clues gain cachet by Insider's proximity to corporate developments, training, and the wherewithal to act. They have tended to be correct and serve as primary nodes in our particular Behavioral model – more often than not leading both the analyst community and price direction.

We hope you find the advanced features provided in this on-line version of the MPT data a useful resource. We welcome commentary and look forward to visiting each of you over the coming months to present applications of our extremely exciting new perspective.
 
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Copyright ©2003 Market Profile Theorems, Inc. All rights reserved.

The data contained in this report were taken from statistical services, reports in our possession, and from other sources. The opinions and estimates expressed are our own, and we make no representation either as to the accuracy or as to the existence of other facts or interpretations which might be significant. The information herein was gathered from responsible sources but we cannot guarantee its accuracy or completeness. We may from time to time have a position in the securities described in this report and may buy or sell such securities.