Timing Outlook Turns Positive

1. Summary

The Outlook moves into positive territory for the first time in months, to 8.5, on the strength of a rally which is now in its 5th week. March 9 clearly represents a possible bottom in the secular bear market that began in October 2007. However, two previous potential bottoms (11/10/08 and 11/20/08) both failed to hold. In my Capital Appreciation portfolio, I have begun to venture carefully back into the market using small purchases of SPY (an ETF that tracks the S&P 500). I have now made three purchases, each using just 5% of my available “stock money.” Each is backed up with tight 8% sell-stops.

2. Market Performance Since Last Outlook

New Outlook: 8.5 (Positive)
Last Outlook (4/1/09): 6.5 (Neutral)
S&P 500 last time (4/1/09): 811
S&P 500 now: 859 Change: +6%
S&P 500 at beginning of 2009: 903
S&P 500 Now: 859 Change YTD: -5%

3. The Outlook's Indicators in Detail
· Conference Board Index of Leading Economic Indicators: The March report, covering February, has not been updated since last time. This indicator stays neutral, because there are not 3 straight readings in one direction. +5
· Fed Funds Rate: The Fed Funds rate remains at 0.5%. There have been 10 cuts (with no increases) since 8/07 totaling 4.75%. There is nothing more the Fed can do with interest rates to make this indicator “better.” Of course, many other Federal programs (the stimulus bill, purchasing of Treasuries by the Fed, etc.) are injecting money into the economy. +10
· S&P 500 Market Valuation: The S&P 500’s P/E moves up slightly to 15. This indicator is positive because it is below 17.4. This metric cannot get “better.” +10
· Morningstar’s Market Valuation Graph is 0.84, up significantly from 0.76 last time, but still below the 0.90 threshold that would take it out of positive territory. (Historical data: All-time low = 0.55 on 11/20/08. Value at end of dot-com bear market = 0.78 in 10/02, which kicked off a 5-year bull market. Most recent low of 0.62 coincides with beginning of market rally on March 10.) This indicator has been moving toward neutrality during the recent rally. +10
· S&P 500 Short Term Technical Trend: The S&P 500, which staged a rally beginning March 10, now displays a classic pattern where the index, the 20-day and 50-day simple moving averages (SMAs) line up in that order. The 20-day SMA crossing upwards through the 50-day SMA is a “golden cross.” That turns this indicator positive. +10
· S&P 500 Medium Term Technical Trend: Even with the rally, now into its 6th week, the index and its two shorter SMAs remain well below its 200-day SMA. That keeps this indicator neutral. +5
· DJIA Short Term Technical Trend: Same situation as S&P 500. Positive. +10
· DJIA Medium Term Technical Trend: Same situation as S&P 500. Neutral. +5
· NASDAQ Short Term Technical Trend: Same situation as with the other two indexes. Positive. +10
· NASDAQ Medium Term Technical Trend: Same situation as with the other two indexes. Neutral. +5

TOTAL POINTS: 85
NEW READING: 85/10 = 8.5 = POSITIVE