Market Leadership: CAPS Screener Results
After watching my CAPS score drop over the past month or so, it dawned on me that I haven’t done a good job keeping a watchlist and planning ahead for market leadership changes. I played around with the CAPS screener over the weekend to try and identify patterns in leadership over the past month and to start work on updating my watchlist.
I set screening parameters to look for stocks that had outperformed the S&P over the past month. There’s no direct search for this, but it’s easy to calculate the S&P return, and then set something above that as a minimum for 4-week price change. I also set a dividend yield range of 2 – 6%; in this case I was looking for income producing stocks but wanted to avoid very high dividends because that’s often a red flag. I lean towards value stocks, so I set a max PE of 20. I also set a debt to equity limit, but don’t recall what it was (note to self, take better notes). Hit search and, presto, 160 hits.
No surprise, the leading sector was financials with 51 hits (32%). Next was consumer goods with 40 hits (25%), then services with 28, industrial goods with 16, utilities with 9, basic materials with 8, tech with 4, and finally conglomerates and health care with 2 each. I managed to confirm the obvious; financials have been doing well lately. I've also got some target sectors to search for stocks that will do well if this trend continues.
The biggest surprise was how few health care names turned up. I recognize that my valuation parameters may have skewed the results from a pure ‘what sectors have been leading’ screen and I don’t have a sector distribution handy, so don’t know how far this was from an even representation.
I also sorted the results by CAPS rating (thanks for the ‘export to spreadsheet function’ TMF!!). The break down was 3-stars – 44; 4-stars – 34; 2-stars – 30; 1-star and 5-star – 26 each. From this screen, it appears the CAPS rating isn’t a very good short term performance predictor. That's not necesarily a bad thing, you don't want to get whipsawed in and out on every little blip.
My goal in this was primarily to identify where to start turning over rocks in case the market action we’ve seen lately is the start of a new trend. I’m not smart enough to offer an opinion on whether the long oil and commodities / short financials market is about to return or if we’re seeing a longer-term market rotation.
However, I do believe this is a very good time to update watchlists, identify some new portfolio candidates and create a few game plans to deal with whatever the market is about to throw at us. I can also recommend the CAPS screener, it offers a good selection of screening parameters, is fast and easy to use.