The Timing Outlook declines to 5.0 from 7.5. This is the lowest possible positive reading; if it were 4.9, it would be negative.
The last two weeks, the market basically went haywire, down 9% the week before last and up 2% this past week (ending on Friday, May 14). Volatility has increased sharply, with “big” moves in 11 of the last 14 trading sessions. In 9 of those 14 sessions, the market declined. Average daily trading volume has increased quite a bit, as it tends to do when the market gets unsteady, especially on “down” days.
On this 6-month chart, a red bar indicates a down day and a white bar indicates an up day. The 20-day SMA (simple moving average) is in green; the 50-day SMA is in blue; and the 200-day SMA is in red. Daily volume is shown in the bar charts along the bottom. (Click on the chart to enlarge it.)
For the year, the market has registered 11 up weeks, 6 down weeks, and 2 with negligible change. In the past two weeks, the market lost 9%, then gained 2%. Since the report two weeks ago, the market’s gain for the year dropped from +6% to +2%, and its gain from March 2009’s lowest point dropped from +75% to + 68%.
The sell-stops in my Capital Gains portfolio were hit, everything sold off, and the portfolio is now 100% in cash. Despite the barely “positive” reading of this Timing Outlook, I will not venture Capital Gains money back into the market while it is acting as it has the past couple of weeks. My criteria for re-entering the market include having two-thirds of recent trading sessions be positive, and the market’s back-and-forth daily swings do not come close to satisfying that criteria. See this article for an explanation of my entry criteria and further comments on recent market action.
The earnings season has been a very good one in terms of companies beating expectations and registering positive earnings and revenue gains compared to the same quarter a year ago. But that positive news has been overwhelmed by the negative news from Europe. Greece got saved from probable default by a massive rescue plan, but the positive effect on the markets lasted just a day. Two other countries—Spain and Italy—are teetering on financial crises of their own. The fear is that there will be a European repeat of the financial crisis that engulfed the U.S. in 2007-2008. One might think that Europe’s problems would not affect American markets, but “The World Is Flat” now, everything is interconnected, and Europe’s problems most definitely affect our markets.
My Dividend Portfolio does not depend on the direction of the market. Rather, it focuses on collecting and re-investing rising dividends. Use this link to view the holdings and performance of both portfolios. For a description of the book on which the Dividend Portfolio is based, see THE TOP 40 DIVIDEND STOCKS FOR 2010: How to Generate Wealth or Income from Dividend Stocks.
2. Market Performance Since Last Timing Outlook
(“now” figures are as of close Friday May 14, 2010)
Last Outlook (4/30/10): 7.5 (positive)
S&P 500 last time (4/30/10): 1187
S&P 500 now: 1136 Change: -4%
S&P 500 at beginning of 2010: 1115
S&P 500 now: 1136 Change in 2010: +2%
S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1136 Change since 3/9/09: +68%
3. Indicators in Detail
• Conference Board Index of Leading Economic Indicators: No new report since last time, when the 12th consecutive monthly increase was recorded. Positive. +10
• Fed Funds Rate: The Fed has left rates near zero for months, and I believe that the Fed will not change rates 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 has been dropping for the past few weeks. As of Friday’s close, it is 16.6, down from 19.1 last time. This takes it below 17.1, which is my dividing line between neutral and positive. This indicator becomes positive for the first time in many months; it had been stuck in neutral. +10
• Morningstar’s Market Valuation Graph. This indicator had been slowly climbing along with the market since mid-February. But the market’s drop over the past four weeks, along with increased earnings being reported, have combined to bring the level down to 1.00, which is exactly “fairly valued” under the Morningstar system. Neutral. +5
• S&P 500 Short Term Technical Trend: The charts of all three major indices (S&P 500, Dow Jones Industrial, and NASDAQ) continued to deteriorate since the last report. Each index is now well below its 20-day SMA and each has also fallen below its 50-day SMA. That pulls the short-term trend indicators down from neutral to negative, because each index is now below their respective 20-day and 50-day SMAs. +0
• S&P 500 Medium Term Technical Trend: The mid-term indicator uses the index plus its 50-day and 200-day SMAs. This indicator falls from positive to neutral with the drop of the index below its 50-day SMA. +5
• DJIA Short Term Technical Trend: As stated above, the DJIA’s chart looks like the S&P 500’s chart. Negative. +0
• DJIA Medium Term Technical Trend: Same as the S&P 500. Neutral. +5
• NASDAQ Short Term Technical Trend: The NASDAQ’s chart looks like the other two. Negative. +0
• NASDAQ Medium Term Technical Trend: Same as the other two. Neutral. +5
TOTAL POINTS: 50
NEW READING: 50 / 10 = 5.0 = POSITIVE (BARELY)
