Positive Timing Outlook Remains at 9.0

1. Summary

The Timing Outlook remains at 9.0, which is a strong positive reading.

As regular readers know, I have been tracking weekly movements in the market this way: P = positive week, N = negative week, and 0 = no change (less than ½ of 1%).

Here is what the market has done in 2010: P-N-N-N-N-P-P-0-P-P-P-P-P-P-0. That’s 9 up weeks, 4 down weeks, and 2 with negligible change. Netted out, the market is up 7% in 2010 and 76% since March 2009’s lowest point. In other words, we have had a 13-month bull market with a nearly uninterrupted 76% rise. This has been one of the best stock investment opportunities in a generation.

The new earnings season kicked off last week. Thirty-seven US companies reported earnings; 73% of them beat consensus earnings expectations and 79% beat revenue expectations. The big star was Intel (INTC), which beat on both earnings and revenue and also raised its guidance for the yearr.

The earnings season will hit full stride next week, with more than 100 of the S&P 500’s companies reporting. Financial companies will be in the spotlight with Citigroup (C), Goldman Sachs (GS), Wells Fargo (WFC), Capital One (COF), American Express (AXP), Travelers (TRV), and many others reporting.

Goldman Sachs, of course, hit the newswires in a major way at the end of last week, charged by the SEC with fraudulent marketing of mortgage-backed securities. That helped lead to a 13% drop in GS on Friday. It also fueled a selling binge that brought the major indices down more than 1% each on Friday, knocking out what would have been the 7th consecutive positive week for the indices.

The AP had an article on Saturday that the SEC’s action could “unleash a torrent of lawsuits.” That may not be good news for stock investors, as traditionally, Wall St. hates uncertainty, and lawsuits create uncertainty. Perhaps the damage will be confined to the large banks, but it spread across all sectors on Friday.

In addition to the financials, other notable companies scheduled to report this coming week include IBM (IBM), Apple (AAPL), Coca-Cola (KO), Johnson & Johnson (JNJ), United Technologies (UTX), Microsoft (MSFT), Amazon.com (AMZN), and Verizon (VZ).

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2. Market Performance Since Last Outlook
(“now” figures are as of close Friday April 16, 2010)

Last Outlook (4/7/10): 9.0 (positive)

S&P 500 last time (4/7/10): 1182
S&P 500 now: 1192 Change: +1%

S&P 500 at beginning of 2010: 1115
S&P 500 now: 1192 Change in 2010: +7%

S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1192 Change since 3/9/09: +76%

3. Indicators in Detail

• Conference Board Index of Leading Economic Indicators: No new report since last time. The next report is due on Monday. The previous report registered this index’s 11th consecutive monthly increase. I give full credit for three positive reports in a row. +10

• Fed Funds Rate: The Fed Funds rate remains unchanged, near zero, so this indicator stays positive. The next Fed meeting is at the end of the month. From the public statements of Chairman Ben Bernanke, the Fed is expected to keep interest rates at rock-bottom levels for awhile. I expect the Fed will adhere to this position as long as the economic recovery remains slow and inflation remains low. Positive. +10

• S&P 500 Market Valuation (P/E): Morningstar shows the current P/E of the S&P 500 based on operating earnings as 20.0, up from 19.6 last time, but still in the fairly valued, neutral zone. +5

• Morningstar’s Market Valuation Graph. This indicator has been slowly climbing along with the market since mid-February, while staying within the “fairly valued” band of 0.9 to 1.1. It currently stands at 1.07, unchanged from last time. Neutral. +5

• S&P 500 Short Term Technical Trend: The charts of all three major indices (S&P 500, Dow Jones Industrial, and NASDAQ) have stayed in the same favorable configuration since early March. That favorable picture shows, for each index, Index > 20-day SMA > 50-day SMA > 200-day SMA, where SMA stands for Simple Moving Average. This short-term technical indicator uses the S&P’s relationship with its 20-day and 50-day SMAs. The relationship is positive, with the index above the 20-day SMA, which is above the 50-day SMA. +10

• S&P 500 Medium Term Technical Trend: This mid-term indicator uses the index plus the 50-day and 200-day SMAs. It remains positive, with the index above the 50-day SMA, which is above the 200-day SMA. +10

• DJIA Short Term Technical Trend: As stated above, the DJIA’s chart looks like the S&P 500’s chart. Positive. +10

• DJIA Medium Term Technical Trend: Positive. +10

• NASDAQ Short Term Technical Trend: The NASDAQ’s chart looks like the other two. Positive. +10

• NASDAQ Medium Term Technical Trend: Positive. +10

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