Timing Outlook Remains Positive as September Kicks Off

1. Summary

The Timing Outlook remains at 9.0, or “positive.” That makes 10 of the last 11 readings positive, with a single “neutral” interruption a few weeks ago. The S&P 500 index has stayed above its March 9 close for 26 consecutive weeks.

The interesting question is now becoming how much longer the rally will last. September is historically the worst month for stocks. Statistically, September has the lowest average return of any month. I have not read a convincing theory on why this should be so, but it can become a self-fulfilling prophecy: Last Tuesday was September 1, and sure enough the market fell 2%. And because of the late Labor Day, I’m sure many consider tomorrow (Tuesday September 8) as the real beginning of September. I would not be surprised to see another market drop tomorrow as traders return from vacation and September “starts over.” I also would not be surprised if September turns out to be a volatile month.

2. Market Performance Since Last Outlook

New Outlook (9/7/09): 9.0 = positive

Last Outlook (8/27/09): 9.0 = positive
S&P 500 last time (8/27/09): 1031
S&P 500 now: 1016 Change: -1%

S&P 500 at beginning of 2009: 903
S&P 500 now: 1016 Change YTD: +13%

S&P 500 at close 3/9/09: 677
S&P 500 now: 1016 Change since 3/9/09: +50%

3. Indicators in Detail

--Conference Board Index of Leading Economic Indicators: No change. Last report issued August 20 increased for the fourth straight month. Positive. +10

--Fed Funds Rate: No change. 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 remained the same as last time at 18.1. At a value above 17.4 but below 19.3, this indicator is considered neutral. +5

--Morningstar’s Market Valuation Graph drops slightly from 1.00 to 0.98, well within the neutral range of 0.90 to 1.10. Morningstar calculates fair values for the ~2000 stocks they cover, then compares their actual prices to the fair value estimates. A reading of 1.00 means the market is fairly valued by this method. (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 chart returns to positive after a substantial market drop last Tuesday put the index below its own 20-day simple moving average (SMA). Gains later in the week moved the index back above. We now have index > 20-day SMA > 50-day SMA. Positive. +10

--S&P 500 Medium Term Technical Trend: This indicator considers the index and the two longer SMAs. We have index > 50-day SMA > 200-day SMA. Positive. +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

The SensibleStocks.com Timing Outlook is a tool to help you make better buy, hold, and sell decisions. Its mission and design is to suggest the likely direction of the market over short time periods (2-4 weeks). Find out more about how it works by clicking here. Track my Capital Appreciation Portfolio by clicking here.

Although it is September, it is not too late to benefit from THE TOP 40 DIVIDEND STOCKS FOR 2009: Dividend Investing for the Long Haul. Most of the stocks in the list have already raised their dividends in 2009, proving their mettle. The e-book contains valuable information on how to start, maintain, and upgrade a dividend portfolio. Find out more about it by clicking here. If you are new to dividend investing, learn how to get started by reading this free FAQ. Track my Dividend Portfolio by clicking here.