Stock Portfolio Updates: Large-Caps still Lagging
By: Christopher Mistal
April 09, 2015
One question that seems to come up rather frequently is, “when will the current bull market most likely come to an end?” Now in its seventh year, the current bull market is DJIA’s fourth longest using the standard bear market definition of a 20% decline, but it is only the fifth best by gain. Well, absent a fully functioning time machine, no one really knows. All that can really be done is compare the ends of past bull markets with present day conditions in an effort to identify some early warning signs.

One sign that has appeared this year is the outperformance of small-cap stocks when compared to large-cap stocks. An easy comparison can be represented by simply taking the Russell 2000 and dividing it by the Russell 1000 as found on the bottom of page 110 of the Stock Trader’s Almanac 2015. A similar chart appears next.

[R2K/R1K Monthly Chart]

In the above chart, small-caps are outperforming large-caps when the line is increasing and lagging when the line is falling. Small caps spiked in late 1999 and early 2000 and reached a peak in early 2006, as the four year old bull entered its final year. They reached a peak in early 2011 just before the mini-bear that year wiped 19.4% out of the S&P 500. Small-caps last peaked at the start of 2014 and the current spike is somewhat reminiscent of previous spikes that occurred near the end of some past bull markets. The current spike by small-caps could be a warning sign that large-cap stock valuations are stretched and the current bull market has entered its twilight year. But this chart alone is not enough to forecast the end of the current bull market; it is only a warning sign worthy of continued observation.

Stock Portfolio Updates 

Over the past three and a half weeks since last update, through the market’s close on April 8, S&P 500 gained a meager 0.03%. However, Russell 2000 continued to climb higher by 1.8% over the same time period while collectively the three Almanac Investor Stock Portfolios advanced 0.7%. Our Mid-Cap portfolio performed best, adding 1.7%. The Small-Cap portfolio was runner up with a 0.9% gain (limited by its currently substantial cash position) while our Large-Cap stocks stumbled and shed 1.7%. 

United Continental Holdings (UAL) and Polaris Industries (PII) were the largest drags on the Large-Cap portfolio. UAL dropped 10.9% since last update. It was dragged down by broad market weakness in late March and then even lower this month when it reported domestic traffic fell in March. Recent oil strength has also weighed on airlines. PII’s decline was more likely the result of the broader market and its chart pattern. It has been stuck in a broad range between about $140 and a little less than $160 since last summer. This type of range will bring buyers near the bottom and sellers near the top. It was near the top of the range in late February and has slowly been falling since. However, it is up nearly 3% today. Longer-term prospects for UAL and PII remain bright, both are on Hold.

Large-cap, Gildan Activewear (GIL) split two for one on March 30. As a result, its “Presented Price” has been adjusted by dividing it by two. Headquartered in Canada you may or may not be all that familiar with their brands, but you have likely heard of Under Armor and New Balance, two brands that GIL manufactures for under licensing arrangements. Continue to Hold shares of GIL.

Moving on to the Mid-Cap portfolio, only Group 1 Automotive (GPI) has had a challenging time in 2015, but still remains 37% higher than when presented. Amerco Inc (UHAL), Jetblue Airways (JBLU) and Lithia Motors (LAD) have enjoyed solid moves higher and new 52-week highs. LAD was at a new high as recently as today. Such strength normally begets more gains as momentum traders rush in to catch the next move higher. GPI, UHAL, JBLU and LAD are on Hold as well. 

Omnicell (OMCL), Chipmos Technologies (IMOS), Standex Intl Co (SXI) and Park-Ohio Holdings (PKOH) were the top performers in the Small-Cap portfolio this time around. Last update’s leader, Newtek Bus Services (NEWT) just missed triggering our sell-half-on-a-double rule on March 25 when it traded to a high of $19.95. It has since pulled back, but its chart remains bullish and technical indicators are beginning to turn positive again.

With the end of the “Best Six Months” for DJIA and S&P 500 imminent, all positions in the Stock Portfolio are on Hold.

See table below for updated Stop Losses.  

[Almanac Investor Stock Portfolios – April 8, 2015 Closes]

Disclosure Note: At press time, officers of the Hirsch Organization, or the accounts they control, held a position in UNH.