Portfolio Design

Advanced concepts in stock investment portfolio design.  Fundamentals, technical analysis and many other related topics are discussed.

Use the Screener to Anticipate Future Market Trends

The Portfolio123 screener is a valuable tool for screening stocks for value metrics and other parameters. But it can also be used to predict the future, and tell the investor where to allocate his or her money. This post provides an example of how to do that.

Stock market analysis fueled by Portfolio123.

A lot has been going on with the market and the economy recently. A good way to position yourself for the near term is to take a peak at how sector and industry ETFs are performing, and then analyzing the short term trends and how they might play out into the future. To start, lets open up the the screener by selecting Screens from the SCREEN pull-down menu.

Selection of Screens from the Portfolio123 SCREEN pull-down menu

Then create a new ETF Screen as shown below.

Selection of New -> ETF Screen

The objective for this screen is to select a variety of US sector and industry ETFs.  In order to avoid massive duplication of screen callups, it is desirable to work with one family of funds. With Portfolio123, I could choose just about any family of ETFs to work with, but the SPDR ETFs seem like a reasonable option.

The ETF-specific screen rules listed under TAXONOMY are as follows:

  1. ETFFamily = SDPR This rule limits the output to SPDR ETFs only as discussed above.
  2. ETFAssetClass = EQUITY This rule further limits the screener output to the equity asset class only.
  3. ETFCountry = USA This rule further limits the output to US equities.
  4. ETFMethod = STANLONG This rule limits the screener output to standard long ETFs i.e. no short or leveraged ETFs allowed

Two additional rules are included, the first being a liquidity filter so that low $-volume (junky) ETFs are not included. This rule is AvgDailyTot(65) > 1000000.

The second rule measures the one week performance and stored in a variable. The rule is: ShowVar(@A, 100 * (Close(0) / Close(5) - 1)).

Note that ShowVar is used in this rule, not SetVar. This is because we want to see the variable when the screen is run, we are not setting a variable for future use that won't be displayed in the Screen Factors Report.

Screen rules

Once the screen has been run and Screen Factors has been selected for the Report, then the report (table) can be sorted by the one week performance by clicking on the variable name as shown below.

Sorting the ETFs by highest to lowest one-week performance

The Screen factor Report is now sorted from highest one-week percent change to lowest.  Lets consider the three economic/political activities going on right now and see how the sectors/industries are responding to these activities.

  1. OPEC Freezes Oil Production: As can be seen below, this very recent event caused Energy ETFs to outperform this past week.
  2. Federal Reserve Hints at Rising Interest Rates: Rising interest rates will result in rising Financial ETFs, in particular Banking and Insurance ETFs.
  3. Expected Clinton election win: Lets just say that Trump had a bad week. As a result Healthcare and Healthcare Services ETFs are rising.

ETFs sorted by highest to lowest one-week performance and then analyzed

Now lets sort on the poorest one-week performance by again clicking on the variable name in the table header. This side of the equation is a bit harder to analyze, but lets give it a try:

  1. OPEC Freezes Oil Production: Higher energy costs imply that margins will go down for mining, materials, industrials, and staples.
  2. Federal Reserve Hints at Rising Interest Rates: Rising interest rates will punish real estate/homebuilders, increase mining and production (materials and industrials) costs, and compete with dividend-related stocks/ETFs, including Utilities.
  3. Expected Clinton election win: Aerospace and Defense stocks will suffer under the democrats, along with Biotech as Clinton is expected to clamp down on drug pricing patents.

ETFs sorted by lowest to highest one-week performance and then analyzed

This exercise gives us a glimpse of the future, providing these trends remain in place.

My personal opinion (please take with a grain of salt) is that two of these trends will not hold.

  1. OPEC has a history of failed productions freezes and this latest version won't hold for long once some members are discovered to be cheating on their quotas. Global slowdown and possibility of rising interest rates wialso be major catalysts for a failed OPEC agreement.
  2. Although the Federal Reserve talks a good talk, the economy is not in good enough shape to raise interest rates, not this year and probably not next year either, particularly with energy prices rising, which already acts on the economy in a similar fashion as rising interest rates.

The election however, barring a miracle, is Ms. Clintons for the taking. I would expect Healthcare Services to excel, while Biotech and Aerospace/Defense to languish.