Timing Outlook Remains Positive

1. Summary

After a sharp rise in early November, the market has been going sideways, driven as usual by the news of the day. Last Friday, the biggest news—that Dubai has asked for a moratorium on its debt payments—took the market down significantly. But on other days, positive news has pulled the market up. The Timing Outlook remains positive at 8.5. This is the 17th consecutive positive reading, essentially coinciding with the market rally that began on March 10. The rally is now well into its ninth month. In that time, the S&P 500 has risen 61% without so much as an 8% correction along the way.

The Dubai news spooked investors, as Dubai has about $80 billion in loans outstanding. It turns out that Dubai has little oil, unlike most of its neighbors, so it has been borrowing to fund its incredible building spree. You have probably seen pictures of the world’s tallest building, the series of man-made islands, and other wonders. As I said last time, the Dubai story, which came out of nowhere, is exactly the kind of news that seems to have been moving the market the entire time.

Some other recent news has been more positive.

--In the third quarter, according to government reports released Tuesday, corporate profits were up 11% for the quarter and 16% since the end of last year, rather startling rates of increase considering how bad things looked just a year ago.

-- The Conference Board’s consumer confidence report on Monday took everyone by surprise, rising to a level not forecast by even the most optimistic forecasters. Most had expected a downturn in confidence.

--The early reports on Black Friday's shopping have been generally positive. Hard numbers will be released later in the week.

--As of the end of last week, 480 of the S&P 500's companies had reported their results. Per Thomson Reuters, 80% of them exceeded Wall Street’s consensus profit expectations. (Historically, the rate is about 60%.)

--And the earnings recovery is now accompanied by good news on the revenue front. Nearly 60% of companies beat analysts’ revenue expectations for the quarter.

I always feel the need to repeat the fine print: The market can turn on a dime. Sell-stops or some other form of downside protection is recommended on long stock positions. I generally exclude from this those stocks held for their dividend distributions rather than for price appreciation.

2. Market Performance Since Last Outlook
(“now” figures are as of close Friday 11/27/09)

Last Outlook (11/13/09): 9.0 (positive)

S&P 500 last time (11/13/09): 1093
S&P 500 now: 1091 Change: -0%

S&P 500 at beginning of 2009: 903
S&P 500 now: 1091 Change YTD: +21%

S&P 500 at close 3/9/09: 677
S&P 500 now: 1091 Change since 3/9/09: +61%

3. Indicators in Detail

--Conference Board Index of Leading Economic Indicators: Last monthly report showed seventh 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 current P/E is not available on the Morningstar site nor several other sites I have checked. Will presume that it has not changed significantly since last time. Neutral. +5

--Morningstar’s Market Valuation Graph. This indicator continues to meander small distances around 1.0, as it has been doing since late July. It now stands at 0.98, compared to 1.0 last time. Being within 10% of 1.0, the market is “fairly valued” by this indicator. (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. All-time high = 1.14 at the end of 2004.) Neutral. +5

--S&P 500 Short Term Technical Trend: Two of the three charts (S&P 500 and Dow) remain in their most positive configuration: Index > 20-day SMA > 50-day SMA > 200-day SMA. The market’s sideways movement since last time has tightened up the four values, but given the configuration, the technical indicators for these two indexes remain 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: The NASDAQ chart has tightened up enough that the index’s value, its 20-day SMA, and its 50-day SMA are practically identical. That drops this indicator to neutral. +5

--NASDAQ Medium Term Technical Trend: This longer-term indicator remains positive, as the index and the two shorter moving averages all remain well above the 200-day SMA. +10

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