1.Value Area
2. Quality Area
2. Quality Area 
3. Growth Area
4. Short/Long Areas (Interpolated)
5. Clusters
6. Cluster Statistics
7. Average Volume
8. Beta
9. EPS Surprise %
10. E/P Ratio
11. Last 12-Month Return %
12. Market Cap
13. M/B Ratio
14. Sharpe Ratio
15. Valuation
16. Volatility
What can you do when market direction is very uncertain? Last week the S&P500 advanced by a mere 0.5 %. It could easily have been down by 0.5 %. Our prediction was not inaccurate. Trying to predict the direction of the market is futile at the moment. So, for this week, we'll take a long colorful tour of the market via the sixteen images of our Self-Organizing Map model above and determine just what kind of stocks have a better chance when better times resume. Before I forget, the explanation page for our methodology and terminology is here:
http://www.technifundamentals.com/2010/07/explanation-page.html . The images 1 to 16 above are in no particular order of relevance to our discussion, and so I'll refer to them by their number when the discussion requires an image to be referenced.
http://www.technifundamentals.com/2010/07/explanation-page.html . The images 1 to 16 above are in no particular order of relevance to our discussion, and so I'll refer to them by their number when the discussion requires an image to be referenced.
Market Outlook
Image 5 denotes the self-organized clusters: S1 is where most of the S&P500 stocks reside (72.97 % of the stock population), S2 is the Long cluster (14.67 %) and S3 the Short cluster (12.36 %). Image 6 cluster statistics shows that the S stocks are of a greater degree of dis-similarity than the L stocks, as measured by the length of their model variable bars, which is a hint that Bearishness is more pronounced than Bullishness. However, after interpolation, in image 4 the Red (L) area is about the same size as the Blue (S) area for S1 where most of the S&P500 stocks reside, and this is an indication that market direction will be very sensitive to unforeseen events during the week. Images 1,2 and 3 show that no particular type of stock- Value, Growth or Quality dominates market action. The significant Green, Yellow, Orange areas in images 1,2,3 denote that areas of V,G, and Q overlap (especially between V and Q). This is another factor adding to the uncertainty in the market.
Image 5 denotes the self-organized clusters: S1 is where most of the S&P500 stocks reside (72.97 % of the stock population), S2 is the Long cluster (14.67 %) and S3 the Short cluster (12.36 %). Image 6 cluster statistics shows that the S stocks are of a greater degree of dis-similarity than the L stocks, as measured by the length of their model variable bars, which is a hint that Bearishness is more pronounced than Bullishness. However, after interpolation, in image 4 the Red (L) area is about the same size as the Blue (S) area for S1 where most of the S&P500 stocks reside, and this is an indication that market direction will be very sensitive to unforeseen events during the week. Images 1,2 and 3 show that no particular type of stock- Value, Growth or Quality dominates market action. The significant Green, Yellow, Orange areas in images 1,2,3 denote that areas of V,G, and Q overlap (especially between V and Q). This is another factor adding to the uncertainty in the market.
So what are the characteristics of the stocks in the L cluster (S2)?
a. These are stocks which have a history of big EPS Surprise % [see image 9 the stocks in the Red,Orange, Yellow nodes of the SOM]. For the rest of the analysis, fix your gaze on this area of cluster S2. The other attributes are examined in relation to this concentrated area of cluster 2 where the L stocks of the ValuEngine screens are located.
b. These are not the big Blue Chips [see image image 12 Market Cap where this area is mostly Blue].
c. More volatile: Image 16 shows these are the more volatile stocks.
d. But they have good valuations. See image 15 where undervalued stocks (negative valuation %) are in the Blue areas.
e. However their Sharpe Ratio is not high. That is going by the Returns/Standard Deviation of the last 5 years, they performed poorly. See Image 14 Sharpe Ratio, the Blue area.
f. In terms of M/B Ratio, they score highly [image 13 shows low M/B Ratio Blue areas of cluster 2.
g. In terms of E/P Ratio, (the inverse of P/E) they also score highly . See image 10 E/P Ratio where 'hot' Red, Yellow areas are in cluster 2 too.
h. In terms of last 12-month Return %, its almost half-half. Some of these stocks have had high 12-month return % and some have had low 12-month return % See image 11.
i. Mostly, these stocks have a high Beta, and are sensitive to the direction of the SP500 Index. See Beta image 8.
j. These stocks are not the high daily volume stocks too. See Image 7
SUMMARY
So the kind of stocks that will do well in the current market situation are mid-cap, lower volume, higher volatility, but with good fundamentals such as low P/E and M/B which have not had their turn in the market. No particular sector nor particular type V,G or Q dominates this list of stocks. Image 0 at the top shows this list of stocks. Where they are repeated in the list, it means they have attributes corresponding to more than one Type V,G or Q.
