Timing Outlook Advances to 9.0

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1. Summary

After staying positive for 11 months, the Timing Outlook fell to a negative 4.4 six weeks ago, after 4 straight down weeks in the S&P 500 resulted in a market loss of 8%. But the market has rallied 9% since then, restoring positive configurations to all three indexes that I use here (S&P 500, Dow Jones Industrial, and NASDAQ). The Timing Outlook has risen steadily since the single negative reading, up to 9.0 today, which is positive.

A few reports ago, I began describing the weekly movements in the market, using this simple system of nomenclature: P stands for a positive week, N stands for a negative week, and 0 stands for no change. Here is what the market has done since the beginning of the new year: P-N-N-N-N-P-P-0-P-P-P. That’s 6 P’s, 4 N’s, and a 0.

The market went up 3% in the first week of the year; then fell 7% over the next 4 weeks; and since then has rallied almost 9%. Netted out for the year, the market is up 4% in 2010. It is up 71% since last March’s lowest point. Note that the one-year anniversary of the rally came and went on March 10.

The first earnings season of the year is almost over, with companies reporting on their Q4 2009 and full-year 2009 results. About 80% of companies have beaten earnings expectations, about the same number beat revenue expectations, and year-over-year earnings for many companies have become positive. Note that the year-over-year hurdle was easy to clear, as Q4 2008 had some of the worst earnings on record. Nevertheless, positive year-over-year comparisons are always good news, and the market’s slow, steady climb has reflected that.

As you know, the 8% sell-stops in my Capital Gains portfolio were hit during the 4-week down-trend (N-N-N-N) of January and early February. Those sales put the portfolio more than 80% in cash. But when the market reversed itself and started back up, I began slowly to move cash back into the market. The portfolio is now about 75% invested, and I will probably make 1-2 more purchases this week. As always, holdings in the Capital Gains portfolio are protected to the downside by sell stops. I am currently using rather tight 6% stops, as I have not gained complete confidence in this rally yet.

If you want to check the performance of the Capital Gains Portfolio portfolio since its creation in 2001, check out this page on my Web site. The portfolio is way ahead of the S&P 500 since its inception.

For a portfolio that does not utilize timing or sell-stops, but rather uses a dividend-growth approach, use the same link above to check out my Dividend Portfolio. For a description of the book on which the Dividend Portfolio is based, go to this page to read about THE TOP 40 DIVIDEND STOCKS FOR 2010: How to Generate Wealth or Income from Dividend Stocks.

2. Market Performance Since Last Outlook
(“now” figures are as of close Friday 3/19/10)

Last Outlook (3/7/10): 7.8 (positive)

S&P 500 last time (3/7/10): 1139
S&P 500 now: 1160 Change: +2%

S&P 500 at beginning of 2010: 1115
S&P 500 now: 1160 Change in 2010: +4%

S&P 500 at close 3/9/09: 677 (beginning of 2009-10's bull market)
S&P 500 now: 1160 Change since 3/9/09: +71%

3. Indicators in Detail

• Conference Board Index of Leading Economic Indicators: A new report last week showed the 11th consecutive monthly increase. The string of increases suggests an improving economy, which is usually good for the stock market. Positive. +10

• Fed Funds Rate: No change.The Fed Funds rate remains near zero, so this indicator stays positive. +10

• S&P 500 Market Valuation: Correspondence with Morningstar paid off, they have corrected their display of the index’s P/E based on operating earnings. The current reading is 19.3, which is in the fairly valued, neutral zone. +5

• Morningstar’s Market Valuation Graph. This indicator has been meandering small distances around 1.0 (“fair value”) since late July, 2009. It has been going up for the past several weeks, along with the market itself, but staying within the “fairly valued” band of 0.9 to 1.1. It currently stands at 1.05, up from 1.04 last time. Neutral. +5

• S&P 500 Short Term Technical Trend: The rise in the market since early February (P-P-0-P-P) has pulled the S&P 500’s chart back into its most favorable configuration: Index > 20-day SMA > 50-day SMA > 200-day SMA. This short-term technical indicator uses the index’s relationship with the two shorter  simple moving averages (SMA). The relationship is positive: The index has pulled the 20-day SMA above the 50-day SMA. Positive.  +10

• S&P 500 Medium Term Technical Trend: This trend uses the two longer SMAs. It remains positive. +10

• DJIA Short Term Technical Trend: The Dow has the same configuration as the S&P 500, so this indicator and the Dow's medium-term indicator are both positive. +10

• DJIA Medium Term Technical Trend: Positive. +10

• NASDAQ Short Term Technical Trend: The NASDAQ chart has the same configuration as the other two. Positive. +10

• NASDAQ Medium Term Technical Trend: Positive. +10

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