The market has been generally rising since the beginning of September. The rally has pulled the Timing Outlook to a strongly positive reading of 8.0, up from 6.0 last time.
For over four months, the S&P 500 had stayed stuck in a trading range of 1,040 to 1,130, essentially going sideways. The index finally passed through and stayed above 1130 on September 20, and it has stayed above that level ever since, slowly drifting upward in fits and starts. (See the chart below. Click on it to enlarge it.)
As frequent readers know, I require not only a positive Timing Outlook but also the satisfaction of a separate set of criteria to invest money in my Capital Gains Portfolio. The additional criteria, again, are:
• 9% rise over two weeks, with at least 7/10 days positive
• 3% rise over 3 weeks, with at least 10/15 days positive
• 4% rise over 4 weeks, with at least 14/20 days positive
• 5% rise over 5 weeks, with at least 17/25 days positive
• Etc.
The criteria were finally met on September 14, and I invested 10% of the portfolio’s funds on that day and another 10% a week later. There have been enough “down” days sprinkled in since then, however, to keep me from investing any more. This has cost me some gains as 80% of the portfolio sits in cash, but I will continue to require the additional margin of safety that the second criteria provide. Long term, that discipline has served me well.
Because I am hard at work on 2011’s edition of The Top 40 Dividend Stocks, I do not have up-to-date Easy-Rate™ sheets for capital-gains stocks. Therefore, for re-entering the market, I have purchased shares of SPY, one of the ETFs that tracks the S&P 500. I am following the market at the end of each day, and if the second set of criteria are satisfied, I will make another purchase.
The market’s action for the past three months is shown on the chart. It shows that the S&P 500 has risen about 11% since the beginning of September. It also shows the number of “down” days (red candlesticks) that frustrate the second criteria, even though the overall direction has been upwards.
My Dividend Portfolio remains 100% invested after the changes described last time. By the way, I have begun to work on the 2011 edition of The Top 40 Dividend Stocks. I will keep you up to date on its progress. I hope to release it in January.
2. Market Performance Since Last Outlook
(“now” figures are as of mid-morning, Monday, October 11, 2010)
Last Outlook (9/13/10): 6.0 (positive)
S&P 500 last time (9/13/10): 1122
S&P 500 now: 1167 Change: +4%
S&P 500 at beginning of 2010: 1115
S&P 500 now: 1167 Change in 2010: +5%
S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1167 Change since 3/9/09: +72%
3. Indicators in Detail
• Conference Board Index of Leading Economic Indicators: The most recent report (September 23) showed an increase in this index, the second in a row. I require three straight monthly increases or decreases to label this as positive or negative, so this indicator remains neutral. +5
• Fed Funds Rate: No change. With the Federal Funds rate near zero, this indicator remains positive. +10
• S&P 500 Market Valuation (P/E): Morningstar pegs the current P/E of the S&P 500 at 14.7, up from 13.7 last time, but still well within positive territory at any value below 17.4. +10
• Morningstar’s Market Valuation Graph. Morningstar’s proprietary market valuation graph is at 1.00, up from 0.96 last time and suggesting that the market is exactly at “fair value” right now. For our purposes, that means neutral. +5
• S&P 500 Short Term Technical Trend: This short-term technical indicator uses the two shorter simple moving averages (SMAs) of the S&P 500. The configuration (see the chart) is Index > 20-day > 50-day. That suggests rally mode, with the index “pulling up” the shorter SMA, which in turn is “pulling up” the longer SMA. Positive. +10
• S&P 500 Medium Term Technical Trend: The mid-term indicator remains ambiguous, as the 200-day SMA is still higher than the 50-day SMA. If (when) the 50-day crosses through and above the 200-day, that will be known as a “golden cross,’ which many consider to be one of the strongest technical indicators. Until then (if it happens), this indicator remains neutral. +5
• DJIA Short Term Technical Trend: This chart looks similar to the S&P 500 chart. Positive. +10
• DJIA Medium Term Technical Trend: On the Dow, the “golden cross” took place a few days ago. Positive. +10
• NASDAQ Short Term Technical Trend: The NASDAQ’s chart has the same configuration as the S&P’s for both trends. Positive. +10
• NASDAQ Medium Term Technical Trend: Neutral. +5
TOTAL POINTS: 80
NEW READING: 80 / 10 = 8.0 = POSITIVE
