Timing Outlook Remains Negative

1. Summary

The market’s volatility has the Timing Outlook jumping around too. The last four readings have been negative-positive-negative-negative. Today’s value is 4.5, which is the same as last time, the second negative reading in a row, and the third negative reading out of the last four.

As mentioned last time, the Timing Outlook is least useful when the market is gyrating. My studies of the Timing Outlook’s performance show that it is least useful when the market is going back and forth every week or every other week. That’s the kind of market we have been in for almost threee months. If U means up and D means down, the last 10 weeks of market action have been U-D-D-U-D-U-D-U-U-D-U-D.

My Capital Appreciation Portfolio remains 100% cash. The market’s rally two weeks ago gave some hope that my criteria for re-entering the market might be close at hand, but last week’s drop pushed that prospect off for a while.

As usual, my Dividend Portfolio remains 100% invested. While its value has been dancing along with the market (but in a more muted fashion), its main goal—generating ever-increasing income streams—is still being met. None of the stocks in the portfolio has cut or frozen its dividend this year. Many have raised their dividends. The holdings are not protected by sell stops.

If you want to learn more about these two portfolios, use these links:
• To see the long-term total performance results of the two portfolios, click here.
• To see the strategy of the Dividend Portfolio, click here.
• To read a complete description of my e-book, THE TOP 40 DIVIDEND STOCKS FOR 2010: How to Generate Wealth or Income from Dividend Stocks, click here.


Finally, as many of you know, I post articles on another investing site called Seeking Alpha. I recently posted two articles on Dividend Champions, which are stocks that have raised their dividends for 25 consecutive years or more. Here are links to those two articles:

• The Fourteen Highest Yielding Dividend Champions (July 2, 2010)--click here
• Nine Dividend Champions with the Fastest Rates of Growth (July 12, 2010)--click here

2. Market Performance Since Last Outlook
(“now” figures are as of close Monday July 19, 2010)

Last Outlook (6/27/10): 4.5 (negative)

S&P 500 last time (6/27/10): 1077
S&P 500 now: 1071 Change: -1%

S&P 500 at beginning of 2010: 1115
S&P 500 now: 1071 Change in 2010: -4%

S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1071 Change since 3/9/09: +58%

3. Indicators in Detail

• Conference Board Index of Leading Economic Indicators: No new report since the June 17 report discussed last time. Last week, Bart van Ark, Chief Economist for The Conference Board, stated in a press release that the rebound effects from the recession have almost entirely dissipated, and that a growth slowdown starting this summer is becoming increasingly apparent. The press release stated that GDP growth for the second quarter might turn out to be the highest for the year. The Conference Board is not predicting a double-dip recession, but rather continued slow growth for the rest of the year. Indicator remains neutral. +5

• Fed Funds Rate: No change. The Fed, through the release of notes from a previous meeting, also seems to be lowering its expectations for the speed of recovery. With near-zero Federal Funds rate, this indicator remains positive. +10

• S&P 500 Market Valuation (P/E): Morningstar shows the current P/E of the S&P 500 is 14.3, down from 15.7 last time. That keeps this indicator in positive territory. +10

• Morningstar’s Market Valuation Graph. Morningstar’s proprietary market valuation graph is at 0.93, down a couple more ticks from 0.95 last time. That keeps this indicator in the neutral range. +5

• S&P 500 Short Term Technical Trend: The market rallied July 6 through 13, pulling it above both its 20-day and 50-day simple moving averages (SMA). Then a sharp drop on Friday pulled it back. It finished today (Monday) below its 50-day and barely above its 20-day. So this indicator, which has been yo-yoing (just like the market) inches up from negative to neutral. +5

• S&P 500 Medium Term Technical Trend: The mid-term indicator uses the index plus its two longer SMAs (50-day and 200-day). The market action since last time has finally turned this indicator negative, as the 50-day SMA fell below the 200-day SMA 11 sessions ago. In many circles, this is known as a “death cross.” The configuration is thus: 200-day SMA > 50-day SMA > Index, the exact opposite of what you would like to see. +0

• DJIA Short Term Technical Trend: This chart looks basically like the S&P 500 chart. Neutral. +5

• DJIA Medium Term Technical Trend: Same as the S&P 500. The death cross occurred 11 sessions ago. Negative. +0

• NASDAQ Short Term Technical Trend: The NASDAQ’s chart has the same configuration as the other two. Neutral. +5

• NASDAQ Medium Term Technical Trend: The death cross occurred four sessions ago. Negative. +0

TOTAL POINTS: 45
NEW READING: 45 / 10 = 4.5 = NEGATIVE