Timing Outlook Stays Positive

1. Summary

Today's Timing Outlook reading is 9.0, or “positive,” down from 9.5 last time. That makes 9 of the last 10 readings positive, with just one “neutral” interruption a few weeks ago. The only significant change from last time is that the P/E valuation of the S&P 500 has climbed into neutral territory from positive. That is a natural outcome of the stock market's rally. The other valuation indicator that I use--Morningstar's Market Valuation Graph--did the same thing a few weeks ago.

The S&P 500 index has now stayed above its March 9 close for 24 consecutive weeks--not only stayed above it, but climbed 52% above it. As mentioned last time, it is pretty safe to say that March 9 marked the end of the 16-month bear market phase that began in October, 2007.

That said, this could still be a “bear market rally,” meaning a bull market phase embedded within a much longer bear market. But at a duration of five+ months and a magnitude of 52% gain without a significant retreat (the biggest fallback was about 8% in June-July), this rally has proved itself to be sustained and investable.

As I have said repeatedly, I have been buying into this rally since April 2, making purchases with 5% chunks of my “stock money.” After multiple purchases, my Capital Gains Portfolio is essentially fully invested. It had been 100% in cash for many months prior to April 2. I am protecting my profits with 8% trailing sell-stops. Most of the purchases have been of SPY (the ETF that tracks the S&P 500 index), with a few purchases of QQQQ (the ETF that tracks the Nasdaq 100) and IBM.

2. Market Performance Since Last Outlook

New Outlook (8/27/09): 9.0 (POSITIVE)

Last Outlook (8/12/09): 9.5 (POSITIVE)
S&P 500 last time (8/12/09): 1006
S&P 500 now: 1031 Change: +2%

S&P 500 at beginning of 2009: 903
S&P 500 now: 1031 Change YTD: +14%

S&P 500 at close 3/9/09: 677
S&P 500 now: 1031 Change since 3/9/09: +52%

3. Indicators in Detail

--Conference Board Index of Leading Economic Indicators: New report issued August 20 increased for the fourth straight month. Positive. +10

--Fed Funds Rate: No change since last time. The Fed Funds rate remains < 0.5%. Ten cuts (with no increases) since 8/07 brought the rate to near zero, plus many Federal programs continue to inject money into the economy. +10

--S&P 500 Market Valuation: According to Morningstar, the S&P 500’s P/E rose from 17.0 to 18.1. At a value above 17.4 but below 19.3, this indicator weakens from positive to neutral. +5

--Morningstar’s Market Valuation Graph is 1.00 for the third time in a row. This means that Morningstar feels that the ~2000 stocks they cover, taken as a whole, are fairly valued. That makes this indicator neutral. (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.) +5

--S&P 500 Short Term Technical Trend: The S&P 500’s chart remains positive. The index and its three key simple moving averages (SMA) line up in the most positive way. For this indicator, we look at the two shorter SMAs: index > 20-day SMA > 50-day SMA. That’s the most bullish arrangement you can have. +10

--S&P 500 Medium Term Technical Trend: Same story. This indicator considers the index and the two longer SMAs. We have index > 50-day SMA > 200-day SMA. Also, as noted last time, the 200-day SMA has bottomed out and is now itself in an upward trend. +10

--DJIA Short Term Technical Trend: Same story as with the S&P 500 chart. Positive. +10

--DJIA Medium Term Technical Trend: Same story. +10

--NASDAQ Short Term Technical Trend: Same as S&P 500 and DJIA. Positive. +10

--NASDAQ Medium Term Technical Trend: Same story. Positive. +10

TOTAL POINTS: 90 NEW READING: 90 / 10 = 9.0 = POSITIVE


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