The S&P 500 closed last week down about 1% from the last Timing Outlook report two weeks ago. The index is now at 1331. All of the indicators stayed the same, except for The Conference Board’s Index of Leading Economic Indicators, which declined after 9 consecutive monthly increases. This shaves another half point off the Timing Outlook, lowering it to 7.5. That is still in positive territory. (Click chart to enlarge.)
In the chart above, you can see that the S&P 500 is just a little above where it was three months ago, but that it fell about 2% in May. The old “sell in May and go away” aphorism looks like good advice right now, but that could change by Halloween, which by tradition is when one is supposed to re-enter the market. The market is up 6% for the year.
I continue to remain 100% invested in SPY (an ETF that tracks the S&P 500) in my Capital Gains Portfolio. The holding is protected to the downside with a trailing 6% sell-stop that applies to all shares. The stop sits now about 4% below Friday’s close.
My Dividend Growth Portfolio remains 100% invested except for accumulating dividends waiting to be invested. I reinvest dividends when they accumulate to $1000, and the total right now is just less than that, so I anticipate making a purchase in June after one or two more dividend payments are received. I love reinvesting dividends, because the inevitable result is that the dividend stream increases: More shares, more dividends. The increase in the dividend stream means that the yield on my original cost ($40,000) goes up. That’s the math of dividend-growth investing in a nutshell.
If you would like to learn more about dividend-growth investing—building wealth slowly or creating an ever-growing dividend stream that stays ahead of inflation—check out this page: 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, May 27, 2011)
Last Outlook (5/15/11): 8.0 (positive)
S&P 500 last time (5/15/11): 1338
S&P 500 now: 1331 Change: -1%
S&P 500 at beginning of 2011: 1258
S&P 500 now: 1331 Change in 2011: +6%
S&P 500 at close 3/9/09 (beginning of bull market): 677
S&P 500 now: 1331 Change since 3/9/09: +97% (in about 27 months)
3. Indicators in Detail
• Conference Board Index of Leading Economic Indicators: After 9 consecutive monthly increases, the report on May 19 showed a decline in this indicator. That lowers it from positive to neutral. I require three straight increases or declines to rate this indicator as positive or negative, otherwise it is ambiguous and therefore neutral. +5
• Fed Funds Rate: No change at 0% to 0.25%. More attention is now being paid to the scheduled June termination of “QE2”—the Fed’s $600 B program of purchasing Treasury bonds. Some speculate that the Fed will be forced to start a QE3 program to help the still-sluggish economy along, but the majority seem to believe that the Fed will stop QE on schedule. Positive. +10
• S&P 500 Market Valuation (P/E): Morningstar’s operating P/E of the S&P 500 remains at 16.4. They do not seem to be recalculating this number as often as they used to. But the value is well within the positive range of being <17.3. Positive. +10
• Morningstar’s Market Valuation Graph. Morningstar’s proprietary market valuation graph is 1.00, down from 1.02 last time. That makes it exactly neutral, which it has been for well over a year. +5
• S&P 500 Short Term Technical Trend: The market’s downward tilt in May has it flirting with its 50-day simple moving average (SMA) and has taken it below its 20-day SMA. So the configuration is 20-day > Index > 50-day. If the market falls below its 50-day SMA, which it did earlier this week only to climb back up, this indicator will turn negative. Right now it’s neutral. +5
• S&P 500 Medium Term Technical Trend: This indicator remains positive, but just slightly as the S&P 500 index is barely over its 50-day SMA. The configuration is Index > 50-day SMA > 200-day SMA. +10
• DJIA Short Term Technical Trend: The Dow’s configuration is the same as the S&P 500’s. Neutral. +5.
• DJIA Medium Term Technical Trend: Same as the S&P 500 chart. Positive. +10
• NASDAQ Short Term Technical Trend: Same as the other two. Neutral. +5
• NASDAQ Medium Term Technical Trend: Same as the other two. Positive. +10
TOTAL POINTS: 75
NEW READING: 75 / 10 = 7.5 = POSITIVE
