1. Stocks in cluster S3
2.The three clusters: S1=Blue, S2=Red, S3=Yellow
3. Cluster statistics of model variables: S3 is really different
4. Relatively high Beta of S3
5.However S3 has low M/B Ratio
6.Moderate valuation of S3
For explanation on technology, methodology and terminology, see: http://www.technifundamentals.com/2010/07/explanation-page.html .
With the DJIA, S&P500 and Nasdaq seemingly diverging, I wanted to know if they formed distinct clusters on the SOM. This would be an indication of their divergence. However, as shown in image 2, they do not form distinct clusters. The 'S's (S&P500 components), the 'D's (DJIA) and the 'N's are all mixed up on the SOM. How then, should you approach the current situation on the market if you are the fundamentals-based, medium term, big cap type of investor? I would suggest you look for stocks that stand out from the rest. On our SOM, S3 (Yellow) is the smallest cluster; but stands out from S2 and S1. This is shown in image 3 where the bars of each model variable are expressed in deviations from the Mean of the entire data set and therefore the longer each bar, whether positively or negatively, the greater the deviation from the norm. Thus, S1 which contains most of the S&P500 stocks is the most average cluster, while S2 is different but not the big difference that you see in S3. Image 1 shows you the stocks that make up S3. Again, it's a mixed bag. But I do discern some patterns here: You can see a many regional banks: Huntington, Regions, Suntrust, Zion etc. I also spot the beaten down Pulte and Lennar, as well as other Finance sector stocks like Legg Mason and ETrade. The general characteristics of the stocks in S3 are shown in the various Attribute Windows: images o (top) , 4, 5 and 6. Using the scale below each attribute window as a guide, we find that these stocks in S3:
1.Have high P/E, but low M/B (good sign?) as well as are undervalued by ValuEngine's models.
2. They are relatively high Beta stocks, so how well they perform depends very much on the performance of the market.
