Timing Outlook Remains Positive Despite Market Moderation in June

1. Summary

The Timing Outlook remains in positive territory for a fifth straight reading, dropping a half-point to 7.0. Therefore, March 9 still represents a possible end of the 16-month bear market that began in October 2007, as the S&P 500 has stayed above its March 9 close for 14 weeks. March, April, and May each showed positive returns. June is down 1% through June 17. I have paused buying for my Capital Appreciation portfolio, which is now 68% invested and 32% in cash. (It was all cash for many months until April 2.) I will resume buying if the market shows signs of restoring its upward trend of the previous three months.

2. Market Performance Since Last Outlook

New Outlook (6/17/09): 7.0 (POSITIVE)
Last Outlook (5/30/09): 7.5 (POSITIVE)

S&P 500 last time (5/30/09): 919
S&P 500 now: 911 Change: -1%

S&P 500 at beginning of 2009: 903
S&P 500 now: 911 Change YTD: +1%

S&P 500 at close 3/9/09: 677
S&P 500 now: 911 Change since 3/9/09: +35%

3. Indicators in Detail

• Conference Board Index of Leading Economic Indicators: June’s report (covering May) rose for the 2nd straight month after 7 months of decline. The indicator stays neutral. Another increase next month would put the indicator into positive territory. Ken Goldstein, Economist at The Conference Board, stated “The recession is losing steam. Confidence is rebuilding and financial market volatility is abating. Even the housing market appears to be stabilizing. If these trends continue, expect a slow recovery beginning before the end of the year. However, employment will take longer to turn around.” Neutral. +5

• Fed Funds Rate: No change. The Fed Funds rate remains at 0.5%. Ten cuts (with no increases) beginning in 8/07 brought the rate to near zero, plus many Federal programs are injecting money into the economy. +10

• S&P 500 Market Valuation: According to Morningstar, the S&P 500’s P/E fell (a good sign) from 16.8 to 14.8. At a value below 17.4, this indicator remains positive. +10

• Morningstar’s Market Valuation Graph is 0.92, nearly unchanged from 0.93 last time. It remains in neutral 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 market’s March 9 low.) Neutral. +5

• S&P 500 Short Term Technical Trend: The S&P 500’s rally, which began on March 10, has slowed and is on a three-day losing streak (through Wednesday 6/17). The index has fallen below its 20-day simple moving average (SMA), but the index and its 20-day SMA are both above the 50-day SMA. Thus this indicator is neutral. +5

• S&P 500 Medium Term Technical Trend: The index and its two shorter SMAs remain below its 200-day SMA. That keeps this indicator neutral. +5

• DJIA Short Term Technical Trend: Same situation as S&P 500. Neutral. +5

• DJIA Medium Term Technical Trend: Same situation as S&P 500. The 20-day SMA has almost reached an identical level with the 200-day, but it has not crossed through it. Neutral. +5

• NASDAQ Short Term Technical Trend: The NASDAQ is slightly above its 20-day SMA (as of 6/17). The index, 20-day, and 50-day SMAs line up in that order. Positive. +10

• NASDAQ Medium Term Technical Trend: The 50-day SMA rose this period above the 200-day SMA, a “golden cross.” The index, 50-day, and 200-day SMAs now line up in that order. Positive. +10

TOTAL POINTS: 70 NEW READING: 70/10 = 7.0 = POSITIVE

Learn more about the philosophy behind the Timing Outlook and how it is calculated. Click here.