• Spring 2020 Point & Figure Institute, April 23 - 24: Do you want to take your financial analysis and portfolio management skills to the next level? Are you looking to scale your process and sharpen your value proposition in order to address the ever-changing wealth management landscape? If you answered yes to either question, be sure to join us in April at the Spring 2020 Point & Figure Institute! Held in the Encore at Wynn in Las Vegas, this two-day event will introduce you to new ideas, frameworks, and tools that will help you manage your business more effectively in 2020. There will also be ample opportunity for engagement with the Nasdaq Dorsey Wright team as well as networking opportunities with other event attendees. The Spring 2020 Point & Figure Institute has been approved for 12 hours of CFP CE and 13 hours of CIMA CE. Click here to secure your spot!

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• Boston NDW Best Practices Workshop  - Thursday, March 19th from 8:30 am - 2 pm @ State Street's Headquarters in Boston, MA  -  Sign up before February 15th to receive our early-bird price of $199!

Surprise! Stick with the technicals. Earnings season for Q4 2019 results is well underway, with 64% of the companies in the S&P 500 Index SPX having reported as of Friday, February 7^th. So far, 71% of the companies included in the large cap domestic equity index that have reported posted surprise earnings per share (EPS) beats, while 67% of the companies reporting have posted positive revenue surprise beats. Currently, the blended earnings growth rate for the S&P 500 is 0.7%, which, if sustained, will mark the first time the index has reported year-over-year growth in earnings since Q4 of 2018. Additionally, the S&P 500’s forward 12-month price/earnings (P/E) ratio is 18.8, well above the 5-year average reading of 16.7 and the 10-year average figure of 15.0 (source: FactSet Earnings Insight).

With the positive backdrop and abundance of exceeded expectations, do earnings surprises suggest an immediate technical turnaround? Not necessarily. When assessing the top ten EPS surprises, we find that the blended portfolio has an average technical attribute rating of 2.10. While 60% of the names are on a Point & Figure buy signal, only 40% trade in a positive trend. This is not much better than a blended portfolio of the 10 worst EPS misses, which displays an average tech attribute rating of 1.70 with 50% of the stocks included trading on PnF buy signals. Additionally, 50% of the names included in the "Miss" portfolio trade in a positive trend, exceeding the current average figure for the "Beat" portfolio. Earnings season is undoubtedly an important time of year for investors as it sets the tone for future sentiment and expectations. However, until the weight of the technical evidence turns positive, a surprise earnings beat may be less of a catalyst for new potential long investment and more of a reiteration of what has already been priced in.

Momentum has proven to be a robust standalone factor, as evidenced by the success of pure momentum strategies available across the Nasdaq Dorsey Wright model and index suite. When momentum is paired with additional factors, however, it can yield positive results that diversify return streams in different market environments. In an effort to capture these potential opportunities, NDW developed the Momentum Plus series of indices that are tracked by three First Trust ETFs. The ETFs provide you with ways of accessing three unique factor combinations that have been shown to provide unique exposure and adaptability over different market cycles. The factor combinations that are available are Momentum & Low Volatility DVOL, Momentum & Value DVLU, and Momentum & Dividend DDIV. For years, we've been discussing the power of combining these different factors with momentum and many of you have employed the concept into your practice, Since launching on September 5^th, 2018, investors have had the ability to access these factor combinations in single-cusip products. Today, we'll review the process behind each of the Momentum Plus Indexes and then take a look at some individual stock ideas using momentum plus value for idea generation. 

DWA Momentum Plus Indexes

The three ETFs available from First Trust are the First Trust Dorsey Wright Momentum & Dividend ETF DDIV, the First Trust Dorsey Wright Momentum & Low Volatility ETF DVOL, and the First Trust Dorsey Wright Momentum & Value ETF DVLU. Each of these funds tracks one of our DWA Momentum Plus Indexes, which combine relative strength with an additional fundamental factor in a single strategy. The goal of each index is to get exposure to a particular fundamental factor while still ensuring each holding has positive relative strength against a broad domestic market representative. We have provided factsheets for each of the underlying indexes, which can be accessed below:

• DWA Momentum Plus Low Volatility Index - click here 
• DWA Momentum Plus Dividend Yield Index - click here
• DWA Momentum Plus Value Index - click here 

Each of these strategies takes a broad inventory of US large and mid-cap equities and compares them to the market using relative strength (momentum). Once we determine which stocks pass the initial RS screen, we then rank them on one of three fundamental factors to construct the index. The 50 securities with the highest attribution for each respective factor are selected for inclusion in that index. The addition of fundamental factor screens differentiates the Momentum Plus Indexes from other our other indexes and is designed to tilt the index differently than a momentum only strategy. 

• Low Volatility: We calculate the standard deviation of daily price changes over the last year.  The 50 securities with the lowest volatility scores are selected for the index.
• Dividend: The 50 securities with the highest current dividend yields are selected or the index.
• Value: We create a composite value score using price-to-earnings, price-to-sales, price-to-book, and price-to-cash flow. In order to be eligible, a security must have data for at least three of the four ratios or it is not eligible. The 50 securities with the best value scores are selected for the index. 

Momentum Plus Value

Today's featured Momentum Plus strategy is the First Trust Dorsey Wright Momentum & Value ETF DVLU. Recall that the fund screens 900+ large and mid-cap US equities for high RS names. From this list, each strong momentum name is ranked by the value factor, specifically assessing four metrics including price-to-sales, price-to-book, price-to-earnings, and price-to cash flow ratios for each potential candidate. Finally, the 50 names with the highest value scores are selected for inclusion in the fund’s underlying index and are factor-weighted, meaning the securities with the highest value scores are weighted the highest. After a bumpy start amid the volatility of late 2018, DVLU went on to outperform the both the Invesco S&P 500 Pure Value ETF RPV and the iShares Russell 1000 Value ETF IWD by significant margins in 2019, returning 31.21% on the year versus to 21.83% and 22.90% for RPV and IWD, respectively. DVLU's stellar year even outpaced the S&P 500 Index SPX, which returned 28.88%. DVLU continues to outpace its value ETF counterparts on a year-to-date basis, returning 1.53% as of 2/7/2020 relative to RPV's negative return of -2.99% and IWD's modest gain of 0.32%. The fund currently sports an acceptable fund score of 3.17 with a positive score direction of 0.86. DVLU currently trades on a third consecutive buy signal and has recently pulled back from a 52-week high at $20. Exposure may be added here, noting that DVLU is testing support at $19.25 on the default chart.

DVLU currently maintains a strong overweight position toward financials, which comprise nearly 41% of the fund's underlying holdings. Industrials and information technology also make up a significant portion of the portfolio, weighing in at 17.63% and 14.07%, respectively. Although DVLU provides a strong comprehensive and individual option for investors, you can also use the NDW platform to drill down to a focused list of names from the fund’s underlying holdings. By clicking “All Holdings” on the top of DVLU’s chart and then selecting “Send To”, we’re able to create a new portfolio of the 50 names included in the ETF. We then can use the Security Screener to narrow down the names to a list of technically-favorable holdings that are 5 for 5’ers, point & figure buy signals, trading in a positive trend, and have reward-to-risk ratios greater than or equal to 2. A table of the16 names that meet these criteria is below.

Momentum Plus Value: Shopping List of Ideas

Symbol	Name	Price	Tech Attrib/Score	DWA Sector	Overbought/Oversold
AGO	Assured Guaranty Ltd.	46.86	5	Insurance	-51%
AMP	Ameriprise Financial	175.32	5	Finance	50%
BPOP	Popular, Inc.	56.11	5	Banks	-38%
CACI	CACI International Inc.	272.00	5	Computers	68%
DHI	D.R. Horton, Inc.	60.70	5	Building	78%
ESNT	Essent Group Ltd	51.89	5	Insurance	-5%
FAF	First American Financial Corporation	60.92	5	Insurance	7%
FNF	Fidelity National Financial, Inc.	45.98	5	Insurance	-20%
GPK	Graphic Packaging Intl.	15.86	5	Forest Prods/Paper	-41%
J	Jacobs Engineering Group Inc.	95.78	5	Building	41%
KBR	KBR, Inc.	29.18	5	Building	-13%
MTG	MGIC Investment Corporation	14.25	5	Insurance	8%
NXST	Nexstar Media Group Inc.	122.21	5	Media	18%
OMF	OneMain Holdings Inc.	43.74	5	Finance	20%
WDC	Western Digital Corporation	67.03	5	Computers	33%
XPO	XPO Logistics Inc	93.21	5	Transports/Non Air	58%

Featured Long Ideas

Fidelity National Financial, Inc. (FNF)

Fidelity National is a strong 5 for 5'er that trades well above its long-term bullish support line. The stock has also been on a market RS buy signal since October of 2017 and ranks 15^th of 71 names included in the insurance sector RS matrix. FNF reversed lower on Friday (2/7), pulling back from a freshly-minted all-time high at $49 to offer a more attractive entry point for long exposure. Despite the pullback, FNF remains on a second consecutive buy signal and is actionable here as the stock is now in oversold territory. From here, support is offered at $45. FNF carries a yield of 2.9%.

OneMain Holdings Inc. (OMF)

OMF is a strong-attribute name that has traded in a positive trend since February of 2019. This 5 for 5'er has also been on a market RS buy signal since October of 2017, confirming long-term strength against the broader market, and ranks 22^nd of 82 names included in the favored finance sector RS matrix. Additionally, both weekly and monthly momentum have recently flipped positive, suggesting the potential for further gain. OMF currently trades on a buy signal and tests resistance at $44. A further advance to $45 would result in a triple top break, marking a second consecutive buy signal and a new multi-year high for the stock. Demand is in control and long exposure may be added here, noting that initial support is offered at $41. OMF further compensates shareholders with a yield of 2.28%.

XPO Logistics Inc (XPO)

XPO Logistics shares recently broke a double top at $92, marking a second consecutive buy signal. This strong 5 for 5'er returned to a positive trend in October of 2019 and also moved o a market RS buy signal in August of 2019. Additionally, XPO ranks fifth of 50 names included in the transports/non-air sector matrix. Demand is in control and long exposure may be added here. Initial support is offered at $88, while overhead resistance is found at the 52-week high of $96.

Daily Option Ideas for February 10, 2020