Market Indicator Report Presages Small Cap Fade
Singular subscribers will be familiar with our recently-introduced weekly publication called the “Market Indicators and Strategy report”. In this report we distill a plethora of factors, such as liquidity, sentiment, technical, earnings momentum, and valuation, into a quantitative score that guides us to a bullish, bearish, or neutral market stance. We track and post this score on a weekly basis and hope our clients are finding it to be a useful tool in portfolio positioning.
As a reminder, an index score for our MMI indicator of 60 or higher is considered bullish; 50 to 60 is neutral; and under 50 is bearish. In the chart below we plot our weekly MMI readings since early May versus the level of the Russell 2000 index. Notably, our MMI readings dropped off considerably in early September, falling from a level well into the bullish zone all the way into the bearish camp. The Russell 2000 trended down throughout the month of September, lending further support to the utility of our weekly report.
For September, the S&P 500 was down 1.6%, the Russell 2000 was down 6.1% and the aggregate Singular List was down 4.9%. For the trailing twelve months, the S&P was up 18.6%, the Russell 2000 was up 8.4%, and the Singular Research List was up 9.4%. Year to date the S&P 500 is up 6.4%; the Russell 2000 is down 5.2% and the Singular list is down 4.6%.
We had two new initiations in September – both BUY rated. We initiated coverage of RFID technology provider Checkpoint Systems (CKP) with a $18 price target and advisory/consulting firm Edgewater Technology (EDGW) with an $9 price target.
Despite the difficult month for small caps, our top five performers in September included three BUY rated companies along with two of our SELL rated companies. As our table shows, the top performing company on the Singular List in June was AVNW. The company reported results for its fiscal fourth quarter ended June 27th along with full year results in early September. A key highlight which was well-received by the market was the reintroduction of forward guidance, signaling that management has an increased level of confidence going forward.
As with our top performers, our worst performers in September were also from a variety of industries and with a range of reasons for the declines. Our top 3 decliners all feature exposure to commodities, with SA and LODE focused on precious metals and VTNR focused on hydrocarbons. As commodities suffered in September, shares of these stocks followed suit but we see no change to our thesis on any of them.
At Singular Research we continue to seek out investment ideas that have minimal to no Wall Street coverage. There are a number of uncovered and under-covered names we continue to track with an eye on helping our clients gain an edge. We thank our clients for your support of independent equity research.
Jeremy Hellman, CFA
Chief Operating Officer