1. Summary
As soon as November started, the market turned upward, and it has gone up on 8 of 11 trading days this month through last Friday. The backwards slide in the second half of October didn’t amount to much after all.
The Timing Outlook returns to a very positive 9.0. This is the 16th consecutive positive reading, essentially coinciding with the market rally that began on March 10 and continues now into its ninth month without so much as a 10% correction along the way. I hope you have been enjoying the ride.
As I write this on Monday morning, the market is rallying today, apparently based on good news from Japan concerning their economy’s growth rate. This is exactly the kind of news that, under my “net news flow” theory, seems to have been moving the market the entire time. The fact that about 80% of companies that have reported earnings so far have beaten their estimates has helped immensely.
That said, the market can turn on a dime. As always, sell-stops or some other form of downside protection is recommended on your long stock positions. Excluded from this, perhaps, might be those stocks you hold for their dividend distributions rather than for price appreciation.
2. Market Performance Since Last Outlook
(“now” figures are as of close Friday 11/13/09)
Last Outlook (10/28/09): 6.0 (positive)
S&P 500 last time (11/13/09): 1043
S&P 500 now: 1093 Change: +5%
S&P 500 at beginning of 2009: 903
S&P 500 now: 1093 Change YTD: +21%
S&P 500 at close 3/9/09: 677
S&P 500 now: 1093 Change since 3/9/09: +61%
3. Indicators in Detail
--Conference Board Index of Leading Economic Indicators: Next report is due Thursday. Last report showed sixth consecutive monthly increase. Positive. +10
--Fed Funds Rate: No change. The Fed Funds rate remains near zero. Positive. +10
--S&P 500 Market Valuation: (Source: Morningstar’s calculation of P/E based on operating earnings.) The S&P 500’s P/E rose since last time from 19.3 to 20.6, remaining in neutral territory. As an interesting side note, the P/E’s rise in percentage terms is 7%, compared to the S&P 500’s rise of 5%. This suggests that the market’s rise is mostly based on improving earnings, but also partly based on more positive sentiment toward the market, what some these days are calling “appetite for risk.” Neutral. +5
--Morningstar’s Market Valuation Graph. Since late July, this indicator has been meandering small distances around 1.0. Today, it is exactly 1.0, meaning “fairly valued.” (Historical data: All-time low = 0.55 on 11/20/08 during the last bear market. 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. All-time high = 1.14 at the end of 2004.) Neutral. +5
--S&P 500 Short Term Technical Trend: The steady trend up in November has returned all three charts to their most positive configuration: Index > 20-day SMA > 50-day SMA > 200-day SMA. All the technical indicators are therefore positive. +10
--S&P 500 Medium Term Technical Trend: Positive. +10
--DJIA Short Term Technical Trend: Positive. +10
--DJIA Medium Term Technical Trend: Positive. +10
--NASDAQ Short Term Technical Trend: Positive. +10
--NASDAQ Medium Term Technical Trend: Positive. +10
TOTAL POINTS: 90 NEW READING: 90 / 10 = 9.0 = POSITIVE
