The Timing Outlook has improved from 8.0 to 9.5, or strongly positive. That’s on the numerical scale. From a subjective point of view, this has to be the weakest, least-inspiring 9.5 I have ever seen. All three short-term technical indicators are just barely positive. If we have a couple of down days, they could turn neutral or even negative in a heartbeat. That would drop the Timing Outlook from 9.5 to 6.5.
The market has been moving up and down within a range of about 80 points on the S&P 500 for around 3 months. On the 3-month graph (above, click to enlarge), this looks like volatility. Indeed, the volatility was enough to take me out of the market via a 5.5% sell-stop. Then it was enough in the other direction to get me 75% back into the market in my Capital Gains Portfolio. All I am buying these days is SPY, an ETF that tracks the S&P 500. I am currently protecting to the downside with a 6% sell-stop that applies to all shares.
On the 2-year long-range graph, it looks like we are in a sideways market. Indeed, Friday’s trading (April 15) was around the same area as on March 29, March 7, March 3, March 1, February 25, February 22, February 10-11, and February 7-8. Since the last report, the market has gone up on 7 days and down on 6.
In the coming few weeks, earnings season will be in full swing. Major companies reporting this coming week include Johnson & Johnson and GE. S&P estimates that Q1 earnings will be up 13% from Q1 2010. The earnings news will compete for attention with macro events, such as the nuclear situation in Japan, Middle East developments, European sovereign debt, the looming end to the Fed’s stimulus program known as “quantitative easing” or QE2, struggles over the federal budget and debt ceiling, continuing high unemployment, and the general impact on consumer spending of high oil prices. Life being what it is, the major story will probably be something other than what I have just listed.
Life is more relaxed in dividend-growth investing, where the focus is on creating an ever-increasing stream of dividends. My Dividend Growth Portfolio always remains 100% invested except for dividends that I am accumulating to purchase more shares. So far in 2011, several stocks in the portfolio have already announced dividend increases: Abbott Labs (9%), Alliant Energy (8%), AT&T (2%), Kinder Morgan Energy Partners (2% so far—they may increase more than once this year), Realty Income (<1% so far, they will increase each quarter), and Sherwin-Williams (1%). I am overdue to give this portfolio its semi-annual Portfolio Review. If you want to learn more about getting wealthy slowly through dividend-growth investing, take a look at TOP 40 DIVIDEND STOCKS FOR 2011: How to Generate Wealth or Income from Dividend-Growth Stocks.
2. Market Performance Since Last Outlook
(“now” figures are as of close Friday, April 15, 2011)
Last Outlook (3/29/11): 8.0 (positive)
S&P 500 last time (3/29/11): 1319
S&P 500 now: 1320 Change: +0%
S&P 500 at beginning of 2011: 1258
S&P 500 now: 1320 Change in 2011: +5%
S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1320 Change since 3/9/09: +95% (in about 25 months)
3. Indicators in Detail
• Conference Board Index of Leading Economic Indicators: No new report since last time. The streak stands at 8 monthly increases in a row. Positive. +10
• Fed Funds Rate: No change at 0% to 0.25%. The Fed continues to be clearly committed to a loose money policy until the economy is well into recovery or they become concerned with inflation. Positive. +10
• S&P 500 Market Valuation (P/E): Morningstar pegs the current operating P/E of the S&P 500 at 16.1. This marks three readings in a row at that level, which is well below the lower edge of the 17.3 – 21.1 neutral range. Positive. +10
• Morningstar’s Market Valuation Graph. Morningstar’s proprietary market valuation graph is 1.03, same as last time. Any value within +/- 10% of 1.00 is neutral. +5
• S&P 500 Short Term Technical Trend: The market’s swings back and forth have brought this indicator to positive. Barely. The close Friday was just slightly above the 20-day simple moving average (SMA), which is just above the 50-day SMA. All three are so close that they are practically touching. Nevertheless, the configuration of Index > 20-day >50-day is the most positive lineup. +10
• S&P 500 Medium Term Technical Trend: Index > 50-day SMA > 200-day SMA. This configuration is the same as last time. Positive. +10
• DJIA Short Term Technical Trend: The Dow’s configuration is the same as the S&P 500’s. Positive. +10.
• DJIA Medium Term Technical Trend: Same as the S&P 500 chart. Positive. +10
• NASDAQ Short Term Technical Trend: On the NASDAQ’s chart, the index, 20-day SMA, and 50-day SMA literally are touching—both SMAs are within the small range that the index traded within on Friday. But when you look really close, the configuration is the same as the other two indicators. Positive. +10
• NASDAQ Medium Term Technical Trend: Same as the other two. Positive. +10
TOTAL POINTS: 95
NEW READING: 95 / 10 = 9.5 = POSITIVE
