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1. Summary
The market finally rose out of its tight trading range in the second half of December, with the S&P 500 piercing 1120 last week (actually getting over 1125) before falling back on Thursday (the last trading day) to finish at 1115. The 1120 mark had been viewed by market technicians as “resistance” on the rally, and the extended sideways market—with the failure for several weeks to exceed 1120—had led some to suggest the 10-month rally was over. Now that 1120 has been exceeded, we’ll see whether the rally will continue.
The Timing Outlook suggests that it will, remaining positive at 8.5, same as last time. This is the 19th consecutive positive reading, essentially coinciding with the market rally that began on March 10, 2009. The rally has lasted almost 10 months and risen 65% without so much as an 8% correction along the way. One note: For the first time since the rally began, a single component of the Timing Outlook turned negative: The P/E of the S&P 500 (as computed by Morningstar) hit 21.3, just above the neutral-range cutoff of 21.2. This will be worth watching over the next few weeks. Is it the canary in the coal mine?
With the turn of the new year, the next earnings season is right around the corner. Last earnings season brought mostly positive news, with about 75% of companies beating earnings expectations and around 60% beating revenue expectations. Forward-looking statements were mixed, but it would be fair to call them slightly positive on average. As regular readers know, I think this whole rally has been news-driven, and I think it will continue to be that way. If we get positive news, on balance, I believe that the market will respond positively. If the news is overall negative—particularly if it suggests that the fledgling economic recovery is stalling out—then I think the market will fall back and the rally will be over.
The fine print: The market can turn on a dime. As always, sell-stops or some other form of downside protection is recommended on long stock positions. I generally exclude from this advice stocks held for their dividends rather than for price appreciation.
2. Market Performance Since Last Outlook
(“now” figures are as of close Thursday 12/30/09)
Last Outlook (12/13/09): 8.5 (positive)
S&P 500 last time (12/13/09): 1106
S&P 500 now: 1115 Change: +1%
S&P 500 at beginning of 2009: 903
S&P 500 now: 1115 Change in 2009: +23%
S&P 500 at close 3/9/09: 677
S&P 500 now: 1115 Change since 3/9/09: +65%
3. Indicators in Detail
· Conference Board Index of Leading Economic Indicators: The report issued in December showed the eighth consecutive monthly increase. Positive. +10
· Fed Funds Rate: No change. The Fed Funds rate remains near zero. Positive. +10
· S&P 500 Market Valuation: (Source: Morningstar’s calculation of P/E based on operating earnings.) The current P/E of the S&P 500 is 21.3, up from 20.0 last time, and the first time in quite a while that this indicator has exceeded the neutral range of 17.4 to 21.2. Negative. +0
· Morningstar’s Market Valuation Graph. This indicator has been meandering small distances around 1.0 (“fair value”) since late July, 2009. It now stands at 1.02. Thus the market is “fairly valued” by this indicator. (Interesting historical data: All-time low = 0.55 on 11/20/08. Value at end of dot-com bear market = 0.78 in 10/02, which kicked off a 5-year bull market. Most recent low of 0.62 coincides with market’s March 9 low. All-time high = 1.14 at the end of 2004.) Neutral. +5
· S&P 500 Short Term Technical Trend: Although the S&P 500’s chart wandered back and forth through its 20-day simple moving average (SMA) a couple of times during its sideways period in November and December, it currently is in its most favorable configuration: Index > 20-day SMA > 50-day SMA > 200-day SMA. It may also be worth noting that the sideways action tightened up the 20-day and 50-day SMAs, which are now just about 8 points apart. Positive. +10
· S&P 500 Medium Term Technical Trend: Positive. +10
· DJIA Short Term Technical Trend: Same story as the S&P 500. Positive. +10
· DJIA Medium Term Technical Trend: Positive. +10
· NASDAQ Short Term Technical Trend: Same pattern as the other two. Positive. +10
· NASDAQ Medium Term Technical Trend: Positive. +10
TOTAL POINTS: 85 NEW READING: 85 / 10 = 8.5 = POSITIVE
Monday, January 4, 2010
Sunday, December 13, 2009
Timing Outlook Positive for 18th Consecutive Time Since Rally Began in March
1. Summary
The Timing Outlook remains positive at 8.5. This is the 18th consecutive positive reading, essentially coinciding with the market rally that began on March 10. The rally has lasted nine months. In that time, the S&P 500 has risen 62% without so much as an 8% correction along the way.
As I’ve said many times in the past, this market is news-driven. News comes mainly from two sources: (1) Government statistics and other reports about the economy (such as unemployment figures or the default last month by Dubai World on its loans). (2) Earnings and revenue reports from companies, with a focus on how figures compare to expectations and the companies’ own forward-looking statements. I call this “net news flow.” When the news is, on balance, good, the market tends to go up. When it is not good (such as the Dubai default), the market tends to go down. When it is net neutral, the market makes little moves up and down.
The Q3 earnings season just ended. The news was generally good. Around 75% of companies beat earnings expectations, and around 60% beat revenue expectations. Forward-looking statements were mixed, but overall sounded more positive than a quarter ago and much more positive than a year ago. In Q3, according to government reports released Tuesday, corporate profits were up 11% for the quarter and 16% since the end of last year—encouraging rates of increase considering how bad things looked just a year ago.
Economic news in the past week was generally positive. Examples:
· The Conference Board’s consumer confidence report Monday took everyone by surprise, rising to a level not forecast by even the most optimistic. Most forecasters had expected a downturn.
· Retail sales improved 1.3% from October to November, almost double the gain that had been expected. On a year-over-year basis, retail sales were up 1.9%.
· And consumers did this without taking on additional debt. For the 9th consecutive month, the level of outstanding consumer debt (excluding real estate loans) decreased.
· For the first time in more than a year, the level of inventories held by businesses increased. While modest, October's 0.2% gain was a welcome surprise, given the expectation of another decrease. Furniture and accessories, electronics, and appliance stores led the way. Analysts cautiously interpret the rise in inventories as positive: Retailers are building depleted stocks in anticipation that they will be sold.
The fine print: The market can turn on a dime. As always, sell-stops or some other form of downside protection is recommended on long stock positions. I generally exclude from this those stocks held for their dividend distributions rather than for price appreciation.
2. Market Performance Since Last Outlook
(“now” figures are as of close Friday 11/11/09)
Last Outlook (11/29/09): 8.5 (positive)
S&P 500 last time (11/29/09): 1091
S&P 500 now: 1106 Change: +1%
S&P 500 at beginning of 2009: 903
S&P 500 now: 1106 Change YTD: +22%
S&P 500 at close 3/9/09: 677
S&P 500 now: 1106 Change since 3/9/09: +63%
3. Indicators in Detail
· Conference Board Index of Leading Economic Indicators: Unchanged, no new report since last time. Index has had seven consecutive monthly increases. Positive. +10
· Fed Funds Rate: No change. The Fed Funds rate remains near zero. Positive. +10
· S&P 500 Market Valuation: (Source: Morningstar’s calculation of P/E based on operating earnings.) The current P/E of the S&P 500 is 20.0. This is in the neutral territory of 17.4 to 21.2. +5
· Morningstar’s Market Valuation Graph. This indicator continues to meander small distances around 1.0, as it has been doing since late July. It now stands at exactly 1.00 Thus the market is “fairly valued” by this indicator. (Interesting historical data: All-time low = 0.55 on 11/20/08. Value at end of dot-com bear market = 0.78 in 10/02, which kicked off a 5-year bull market. Most recent low of 0.62 coincides with market’s March 9 low. All-time high = 1.14 at the end of 2004.) Neutral. +5
· S&P 500 Short Term Technical Trend: The S&P 500 chart is currently in its most favorable configuration: Index > 20-day SMA > 50-day SMA > 200-day SMA. For a couple of days last week, the index did drop below its 20-day SMA, but rose back above it on Thursday and Friday. Positive. +10
· S&P 500 Medium Term Technical Trend: Positive. +10
· DJIA Short Term Technical Trend: Exactly the same situation as with the S&P 500, including the two-day drop below the 20-day SMA. Positive. +10
· DJIA Medium Term Technical Trend: Positive. +10
· NASDAQ Short Term Technical Trend: The NASDAQ chart displays essentially the same pattern as the other two. Positive. +5
· NASDAQ Medium Term Technical Trend: Positive. +10
TOTAL POINTS: 85 NEW READING: 85 / 10 = 8.5 = POSITIVE
The Timing Outlook remains positive at 8.5. This is the 18th consecutive positive reading, essentially coinciding with the market rally that began on March 10. The rally has lasted nine months. In that time, the S&P 500 has risen 62% without so much as an 8% correction along the way.
As I’ve said many times in the past, this market is news-driven. News comes mainly from two sources: (1) Government statistics and other reports about the economy (such as unemployment figures or the default last month by Dubai World on its loans). (2) Earnings and revenue reports from companies, with a focus on how figures compare to expectations and the companies’ own forward-looking statements. I call this “net news flow.” When the news is, on balance, good, the market tends to go up. When it is not good (such as the Dubai default), the market tends to go down. When it is net neutral, the market makes little moves up and down.
The Q3 earnings season just ended. The news was generally good. Around 75% of companies beat earnings expectations, and around 60% beat revenue expectations. Forward-looking statements were mixed, but overall sounded more positive than a quarter ago and much more positive than a year ago. In Q3, according to government reports released Tuesday, corporate profits were up 11% for the quarter and 16% since the end of last year—encouraging rates of increase considering how bad things looked just a year ago.
Economic news in the past week was generally positive. Examples:
· The Conference Board’s consumer confidence report Monday took everyone by surprise, rising to a level not forecast by even the most optimistic. Most forecasters had expected a downturn.
· Retail sales improved 1.3% from October to November, almost double the gain that had been expected. On a year-over-year basis, retail sales were up 1.9%.
· And consumers did this without taking on additional debt. For the 9th consecutive month, the level of outstanding consumer debt (excluding real estate loans) decreased.
· For the first time in more than a year, the level of inventories held by businesses increased. While modest, October's 0.2% gain was a welcome surprise, given the expectation of another decrease. Furniture and accessories, electronics, and appliance stores led the way. Analysts cautiously interpret the rise in inventories as positive: Retailers are building depleted stocks in anticipation that they will be sold.
The fine print: The market can turn on a dime. As always, sell-stops or some other form of downside protection is recommended on long stock positions. I generally exclude from this those stocks held for their dividend distributions rather than for price appreciation.
2. Market Performance Since Last Outlook
(“now” figures are as of close Friday 11/11/09)
Last Outlook (11/29/09): 8.5 (positive)
S&P 500 last time (11/29/09): 1091
S&P 500 now: 1106 Change: +1%
S&P 500 at beginning of 2009: 903
S&P 500 now: 1106 Change YTD: +22%
S&P 500 at close 3/9/09: 677
S&P 500 now: 1106 Change since 3/9/09: +63%
3. Indicators in Detail
· Conference Board Index of Leading Economic Indicators: Unchanged, no new report since last time. Index has had seven consecutive monthly increases. Positive. +10
· Fed Funds Rate: No change. The Fed Funds rate remains near zero. Positive. +10
· S&P 500 Market Valuation: (Source: Morningstar’s calculation of P/E based on operating earnings.) The current P/E of the S&P 500 is 20.0. This is in the neutral territory of 17.4 to 21.2. +5
· Morningstar’s Market Valuation Graph. This indicator continues to meander small distances around 1.0, as it has been doing since late July. It now stands at exactly 1.00 Thus the market is “fairly valued” by this indicator. (Interesting historical data: All-time low = 0.55 on 11/20/08. Value at end of dot-com bear market = 0.78 in 10/02, which kicked off a 5-year bull market. Most recent low of 0.62 coincides with market’s March 9 low. All-time high = 1.14 at the end of 2004.) Neutral. +5
· S&P 500 Short Term Technical Trend: The S&P 500 chart is currently in its most favorable configuration: Index > 20-day SMA > 50-day SMA > 200-day SMA. For a couple of days last week, the index did drop below its 20-day SMA, but rose back above it on Thursday and Friday. Positive. +10
· S&P 500 Medium Term Technical Trend: Positive. +10
· DJIA Short Term Technical Trend: Exactly the same situation as with the S&P 500, including the two-day drop below the 20-day SMA. Positive. +10
· DJIA Medium Term Technical Trend: Positive. +10
· NASDAQ Short Term Technical Trend: The NASDAQ chart displays essentially the same pattern as the other two. Positive. +5
· NASDAQ Medium Term Technical Trend: Positive. +10
TOTAL POINTS: 85 NEW READING: 85 / 10 = 8.5 = POSITIVE
Tuesday, December 8, 2009
The Top 40 Dividend Stocks for 2010--Getting Closer to Publication
Preparing the new edition of THE TOP 40 DIVIDEND STOCKS is a little like the NCAA basketball tournament. First, the Selection Committee--that would be me--must decide who is even eligible. Theoretically, all stocks, worldwide, are eligible. But because this is a book on dividend investing, the very first step is to select a starting universe of dividend-paying companies with half-decent records. I did that a couple months ago, ending up with about 700 companies. That's my starting universe.
Next, I put those companies through what I call "Stage 1" testing. I applied five ground-rule requirements. Each stock must have:
--Increased its dividend distribution in each of past 5 years.
--Current yield of at least 3% (2.5% is allowed for stocks that have raised their dividends at least 20 years in a row).
--Positive return in 3 of past 5 years.
--Total return over past 5 years of at least even.
--3-year percentage increase in dividend payout of at least 16% total (12% is allowed for members of the 20-year club).
Those five simple tests (eased a little bit so as not to lose borderline candidates) reduced the starting universe of 700 down to 169 stocks. Then in November came Stage 2. I appplied the same five tests to those 169 stocks, with no easing this time. The tests were applied rigorously. That got the number down to 108. These are the Semi-Finalists, sort of like the Sweet 16 round of the basketball tournament.
The December task for the Selection Committee (me) is to reduce that list again to what I call the Finalists. I am working on that right now. What I do is "score" those stocks using a partial version of the complete Easy-Rate system. This allows me to eliminate those stocks that, while they may be very good investments, are not the championship calibre of the Top 40. I try to identify 50 to 60 Finalists. I do this by recording the score for each of the stocks, then sorting the list by score. The stocks sort themselves out, from obvious winners to stocks that may now even fall short of the original tests from the first stage. For example, a stock's rising price may have driven its yield below the acceptable minimum.
I will take a first shot at identifying the Top 40 by the end of December. But the final selection will take place in the first week of January, when I have complete 2009 data to work with. By then, I will have written all of the Finalists' Stories and prepared their Easy-Rate sheets that will appear in the book. One final pass through the latest data will allow me to make any necessary changes to my first crack at the Top 40. When I know exactly who the winners are, I will update all their Easy-Rate sheets and combine them with the text.
Ah, the text. Throughout the year, I have been collecting information and tidbits to update the text. I start with last year's text, of course, but a good portion of it--more than 25%--gets changed for the new edition. New statistics and charts are added. The scoring system has been further refined this year, to place a little more emphasis on high-yielding stocks. I completed a first draft of the new text in November. Later this month, after I have identified the Finalists as explained above, I will go through the text again and complete the second draft.
Just as with the Top 40 stocks themselves, I will make one final pass through the text in January, with complete 2009 information available. Tables will be prepared showing how 2009's Top 40 stocks did and presenting the 2010 Top 40 in a variety of ways for easy access and use.
Finally, when they are merged, the text, the Top 40 list and its tables, plus an Easy-Rate sheet for each stock, will form the complete e-book. I hope to launch it on or about January 20. And then, I'm going on vacation!
Next, I put those companies through what I call "Stage 1" testing. I applied five ground-rule requirements. Each stock must have:
--Increased its dividend distribution in each of past 5 years.
--Current yield of at least 3% (2.5% is allowed for stocks that have raised their dividends at least 20 years in a row).
--Positive return in 3 of past 5 years.
--Total return over past 5 years of at least even.
--3-year percentage increase in dividend payout of at least 16% total (12% is allowed for members of the 20-year club).
Those five simple tests (eased a little bit so as not to lose borderline candidates) reduced the starting universe of 700 down to 169 stocks. Then in November came Stage 2. I appplied the same five tests to those 169 stocks, with no easing this time. The tests were applied rigorously. That got the number down to 108. These are the Semi-Finalists, sort of like the Sweet 16 round of the basketball tournament.
The December task for the Selection Committee (me) is to reduce that list again to what I call the Finalists. I am working on that right now. What I do is "score" those stocks using a partial version of the complete Easy-Rate system. This allows me to eliminate those stocks that, while they may be very good investments, are not the championship calibre of the Top 40. I try to identify 50 to 60 Finalists. I do this by recording the score for each of the stocks, then sorting the list by score. The stocks sort themselves out, from obvious winners to stocks that may now even fall short of the original tests from the first stage. For example, a stock's rising price may have driven its yield below the acceptable minimum.
I will take a first shot at identifying the Top 40 by the end of December. But the final selection will take place in the first week of January, when I have complete 2009 data to work with. By then, I will have written all of the Finalists' Stories and prepared their Easy-Rate sheets that will appear in the book. One final pass through the latest data will allow me to make any necessary changes to my first crack at the Top 40. When I know exactly who the winners are, I will update all their Easy-Rate sheets and combine them with the text.
Ah, the text. Throughout the year, I have been collecting information and tidbits to update the text. I start with last year's text, of course, but a good portion of it--more than 25%--gets changed for the new edition. New statistics and charts are added. The scoring system has been further refined this year, to place a little more emphasis on high-yielding stocks. I completed a first draft of the new text in November. Later this month, after I have identified the Finalists as explained above, I will go through the text again and complete the second draft.
Just as with the Top 40 stocks themselves, I will make one final pass through the text in January, with complete 2009 information available. Tables will be prepared showing how 2009's Top 40 stocks did and presenting the 2010 Top 40 in a variety of ways for easy access and use.
Finally, when they are merged, the text, the Top 40 list and its tables, plus an Easy-Rate sheet for each stock, will form the complete e-book. I hope to launch it on or about January 20. And then, I'm going on vacation!
Sunday, November 29, 2009
Timing Outlook Remains Positive
1. Summary
After a sharp rise in early November, the market has been going sideways, driven as usual by the news of the day. Last Friday, the biggest news—that Dubai has asked for a moratorium on its debt payments—took the market down significantly. But on other days, positive news has pulled the market up. The Timing Outlook remains positive at 8.5. This is the 17th consecutive positive reading, essentially coinciding with the market rally that began on March 10. The rally is now well into its ninth month. In that time, the S&P 500 has risen 61% without so much as an 8% correction along the way.
The Dubai news spooked investors, as Dubai has about $80 billion in loans outstanding. It turns out that Dubai has little oil, unlike most of its neighbors, so it has been borrowing to fund its incredible building spree. You have probably seen pictures of the world’s tallest building, the series of man-made islands, and other wonders. As I said last time, the Dubai story, which came out of nowhere, is exactly the kind of news that seems to have been moving the market the entire time.
Some other recent news has been more positive.
--In the third quarter, according to government reports released Tuesday, corporate profits were up 11% for the quarter and 16% since the end of last year, rather startling rates of increase considering how bad things looked just a year ago.
-- The Conference Board’s consumer confidence report on Monday took everyone by surprise, rising to a level not forecast by even the most optimistic forecasters. Most had expected a downturn in confidence.
--The early reports on Black Friday's shopping have been generally positive. Hard numbers will be released later in the week.
--As of the end of last week, 480 of the S&P 500's companies had reported their results. Per Thomson Reuters, 80% of them exceeded Wall Street’s consensus profit expectations. (Historically, the rate is about 60%.)
--And the earnings recovery is now accompanied by good news on the revenue front. Nearly 60% of companies beat analysts’ revenue expectations for the quarter.
I always feel the need to repeat the fine print: The market can turn on a dime. Sell-stops or some other form of downside protection is recommended on long stock positions. I generally exclude from this those stocks held for their dividend distributions rather than for price appreciation.
2. Market Performance Since Last Outlook
(“now” figures are as of close Friday 11/27/09)
Last Outlook (11/13/09): 9.0 (positive)
S&P 500 last time (11/13/09): 1093
S&P 500 now: 1091 Change: -0%
S&P 500 at beginning of 2009: 903
S&P 500 now: 1091 Change YTD: +21%
S&P 500 at close 3/9/09: 677
S&P 500 now: 1091 Change since 3/9/09: +61%
3. Indicators in Detail
--Conference Board Index of Leading Economic Indicators: Last monthly report showed seventh consecutive monthly increase. Positive. +10
--Fed Funds Rate: No change. The Fed Funds rate remains near zero. Positive. +10
--S&P 500 Market Valuation: (Source: Morningstar’s calculation of P/E based on operating earnings.) The current P/E is not available on the Morningstar site nor several other sites I have checked. Will presume that it has not changed significantly since last time. Neutral. +5
--Morningstar’s Market Valuation Graph. This indicator continues to meander small distances around 1.0, as it has been doing since late July. It now stands at 0.98, compared to 1.0 last time. Being within 10% of 1.0, the market is “fairly valued” by this indicator. (Historical data: All-time low = 0.55 on 11/20/08. Value at end of dot-com bear market = 0.78 in 10/02, which kicked off a 5-year bull market. Most recent low of 0.62 coincides with market’s March 9 low. All-time high = 1.14 at the end of 2004.) Neutral. +5
--S&P 500 Short Term Technical Trend: Two of the three charts (S&P 500 and Dow) remain in their most positive configuration: Index > 20-day SMA > 50-day SMA > 200-day SMA. The market’s sideways movement since last time has tightened up the four values, but given the configuration, the technical indicators for these two indexes remain positive. +10
--S&P 500 Medium Term Technical Trend: Positive. +10
--DJIA Short Term Technical Trend: Positive. +10
--DJIA Medium Term Technical Trend: Positive. +10
--NASDAQ Short Term Technical Trend: The NASDAQ chart has tightened up enough that the index’s value, its 20-day SMA, and its 50-day SMA are practically identical. That drops this indicator to neutral. +5
--NASDAQ Medium Term Technical Trend: This longer-term indicator remains positive, as the index and the two shorter moving averages all remain well above the 200-day SMA. +10
TOTAL POINTS: 85 NEW READING: 85 / 10 = 8.5 = POSITIVE
After a sharp rise in early November, the market has been going sideways, driven as usual by the news of the day. Last Friday, the biggest news—that Dubai has asked for a moratorium on its debt payments—took the market down significantly. But on other days, positive news has pulled the market up. The Timing Outlook remains positive at 8.5. This is the 17th consecutive positive reading, essentially coinciding with the market rally that began on March 10. The rally is now well into its ninth month. In that time, the S&P 500 has risen 61% without so much as an 8% correction along the way.
The Dubai news spooked investors, as Dubai has about $80 billion in loans outstanding. It turns out that Dubai has little oil, unlike most of its neighbors, so it has been borrowing to fund its incredible building spree. You have probably seen pictures of the world’s tallest building, the series of man-made islands, and other wonders. As I said last time, the Dubai story, which came out of nowhere, is exactly the kind of news that seems to have been moving the market the entire time.
Some other recent news has been more positive.
--In the third quarter, according to government reports released Tuesday, corporate profits were up 11% for the quarter and 16% since the end of last year, rather startling rates of increase considering how bad things looked just a year ago.
-- The Conference Board’s consumer confidence report on Monday took everyone by surprise, rising to a level not forecast by even the most optimistic forecasters. Most had expected a downturn in confidence.
--The early reports on Black Friday's shopping have been generally positive. Hard numbers will be released later in the week.
--As of the end of last week, 480 of the S&P 500's companies had reported their results. Per Thomson Reuters, 80% of them exceeded Wall Street’s consensus profit expectations. (Historically, the rate is about 60%.)
--And the earnings recovery is now accompanied by good news on the revenue front. Nearly 60% of companies beat analysts’ revenue expectations for the quarter.
I always feel the need to repeat the fine print: The market can turn on a dime. Sell-stops or some other form of downside protection is recommended on long stock positions. I generally exclude from this those stocks held for their dividend distributions rather than for price appreciation.
2. Market Performance Since Last Outlook
(“now” figures are as of close Friday 11/27/09)
Last Outlook (11/13/09): 9.0 (positive)
S&P 500 last time (11/13/09): 1093
S&P 500 now: 1091 Change: -0%
S&P 500 at beginning of 2009: 903
S&P 500 now: 1091 Change YTD: +21%
S&P 500 at close 3/9/09: 677
S&P 500 now: 1091 Change since 3/9/09: +61%
3. Indicators in Detail
--Conference Board Index of Leading Economic Indicators: Last monthly report showed seventh consecutive monthly increase. Positive. +10
--Fed Funds Rate: No change. The Fed Funds rate remains near zero. Positive. +10
--S&P 500 Market Valuation: (Source: Morningstar’s calculation of P/E based on operating earnings.) The current P/E is not available on the Morningstar site nor several other sites I have checked. Will presume that it has not changed significantly since last time. Neutral. +5
--Morningstar’s Market Valuation Graph. This indicator continues to meander small distances around 1.0, as it has been doing since late July. It now stands at 0.98, compared to 1.0 last time. Being within 10% of 1.0, the market is “fairly valued” by this indicator. (Historical data: All-time low = 0.55 on 11/20/08. Value at end of dot-com bear market = 0.78 in 10/02, which kicked off a 5-year bull market. Most recent low of 0.62 coincides with market’s March 9 low. All-time high = 1.14 at the end of 2004.) Neutral. +5
--S&P 500 Short Term Technical Trend: Two of the three charts (S&P 500 and Dow) remain in their most positive configuration: Index > 20-day SMA > 50-day SMA > 200-day SMA. The market’s sideways movement since last time has tightened up the four values, but given the configuration, the technical indicators for these two indexes remain positive. +10
--S&P 500 Medium Term Technical Trend: Positive. +10
--DJIA Short Term Technical Trend: Positive. +10
--DJIA Medium Term Technical Trend: Positive. +10
--NASDAQ Short Term Technical Trend: The NASDAQ chart has tightened up enough that the index’s value, its 20-day SMA, and its 50-day SMA are practically identical. That drops this indicator to neutral. +5
--NASDAQ Medium Term Technical Trend: This longer-term indicator remains positive, as the index and the two shorter moving averages all remain well above the 200-day SMA. +10
TOTAL POINTS: 85 NEW READING: 85 / 10 = 8.5 = POSITIVE
Monday, November 16, 2009
Market's Up, So Is Timing Outlook
(Note to subscribers: The e-mail subscription version you receive omits some formatting such as boldfacing and other cosmetic niceties. Links are also harder to see. If you want to view this post in its best format, just click on the title above, which is a link that will take you directly to this article in my Newsletter.)
1. Summary
As soon as November started, the market turned upward, and it has gone up on 8 of 11 trading days this month through last Friday. The backwards slide in the second half of October didn’t amount to much after all.
The Timing Outlook returns to a very positive 9.0. This is the 16th consecutive positive reading, essentially coinciding with the market rally that began on March 10 and continues now into its ninth month without so much as a 10% correction along the way. I hope you have been enjoying the ride.
As I write this on Monday morning, the market is rallying today, apparently based on good news from Japan concerning their economy’s growth rate. This is exactly the kind of news that, under my “net news flow” theory, seems to have been moving the market the entire time. The fact that about 80% of companies that have reported earnings so far have beaten their estimates has helped immensely.
That said, the market can turn on a dime. As always, sell-stops or some other form of downside protection is recommended on your long stock positions. Excluded from this, perhaps, might be those stocks you hold for their dividend distributions rather than for price appreciation.
2. Market Performance Since Last Outlook
(“now” figures are as of close Friday 11/13/09)
Last Outlook (10/28/09): 6.0 (positive)
S&P 500 last time (11/13/09): 1043
S&P 500 now: 1093 Change: +5%
S&P 500 at beginning of 2009: 903
S&P 500 now: 1093 Change YTD: +21%
S&P 500 at close 3/9/09: 677
S&P 500 now: 1093 Change since 3/9/09: +61%
3. Indicators in Detail
--Conference Board Index of Leading Economic Indicators: Next report is due Thursday. Last report showed sixth consecutive monthly increase. Positive. +10
1. Summary
As soon as November started, the market turned upward, and it has gone up on 8 of 11 trading days this month through last Friday. The backwards slide in the second half of October didn’t amount to much after all.
The Timing Outlook returns to a very positive 9.0. This is the 16th consecutive positive reading, essentially coinciding with the market rally that began on March 10 and continues now into its ninth month without so much as a 10% correction along the way. I hope you have been enjoying the ride.
As I write this on Monday morning, the market is rallying today, apparently based on good news from Japan concerning their economy’s growth rate. This is exactly the kind of news that, under my “net news flow” theory, seems to have been moving the market the entire time. The fact that about 80% of companies that have reported earnings so far have beaten their estimates has helped immensely.
That said, the market can turn on a dime. As always, sell-stops or some other form of downside protection is recommended on your long stock positions. Excluded from this, perhaps, might be those stocks you hold for their dividend distributions rather than for price appreciation.
2. Market Performance Since Last Outlook
(“now” figures are as of close Friday 11/13/09)
Last Outlook (10/28/09): 6.0 (positive)
S&P 500 last time (11/13/09): 1043
S&P 500 now: 1093 Change: +5%
S&P 500 at beginning of 2009: 903
S&P 500 now: 1093 Change YTD: +21%
S&P 500 at close 3/9/09: 677
S&P 500 now: 1093 Change since 3/9/09: +61%
3. Indicators in Detail
--Conference Board Index of Leading Economic Indicators: Next report is due Thursday. Last report showed sixth consecutive monthly increase. Positive. +10
--Fed Funds Rate: No change. The Fed Funds rate remains near zero. Positive. +10
--S&P 500 Market Valuation: (Source: Morningstar’s calculation of P/E based on operating earnings.) The S&P 500’s P/E rose since last time from 19.3 to 20.6, remaining in neutral territory. As an interesting side note, the P/E’s rise in percentage terms is 7%, compared to the S&P 500’s rise of 5%. This suggests that the market’s rise is mostly based on improving earnings, but also partly based on more positive sentiment toward the market, what some these days are calling “appetite for risk.” Neutral. +5
--Morningstar’s Market Valuation Graph. Since late July, this indicator has been meandering small distances around 1.0. Today, it is exactly 1.0, meaning “fairly valued.” (Historical data: All-time low = 0.55 on 11/20/08 during the last bear market. Value at end of dot-com bear market = 0.78 in 10/02, which kicked off a 5-year bull market. Most recent low of 0.62 coincides with market’s March 9 low. All-time high = 1.14 at the end of 2004.) Neutral. +5
--S&P 500 Short Term Technical Trend: The steady trend up in November has returned all three charts to their most positive configuration: Index > 20-day SMA > 50-day SMA > 200-day SMA. All the technical indicators are therefore positive. +10
--S&P 500 Medium Term Technical Trend: Positive. +10
--DJIA Short Term Technical Trend: Positive. +10
--DJIA Medium Term Technical Trend: Positive. +10
--NASDAQ Short Term Technical Trend: Positive. +10
--NASDAQ Medium Term Technical Trend: Positive. +10
TOTAL POINTS: 90 NEW READING: 90 / 10 = 9.0 = POSITIVE
Friday, November 6, 2009
"TOP 40 DIVIDEND STOCKS FOR 2010" Update
As I reported a few weeks ago, I have begun work on THE TOP 40 DIVIDEND STOCKS FOR 2010, my annual e-book for investors working on a dividend strategy. My hope this year is to release it in January, or three months sooner than 2009's and five months sooner than 2008's.
I have completed my first pass through all 700 original candidates. To refresh your memory, in the first pass I apply five requirements to each candidate. The five requirements are:
(1) Yield must be > 3.0%. For stocks that have increased their dividend for at least 20 years in a row, the minimum yield is 2.5%. For REITs, the minimum yield is 5.0%, to make up for the increased taxability of distributions by REITs compared to ordinary dividends.
(2) The 3-year total percentage increase in the dividend must be at least 16% (or about 5% annualized). For stocks that have raised their dividends for 20 or more years in a row, the three-year increase must be at least 12% (or about 4% annualized).
(3) The stock must have delivered a positive return in 3 of the past 5 years, including year-to-date in 2009.
(4) The total return for the stock over the past 5 years must be >0%. (For comparison, the S&P 500's return over the same time period has been about 2.6%.)
(5) The stock must have raised its dividend in each of the past 5 years.
During the first pass, I "eased" some of the foregoing requirements. The reason is that I was working with partial 2009 numbers, so I wanted to give stocks every fair opportunity to pass through to the next stage of testing. So, for example, I eased the 3.0% dividend requirement to 2.8% for the first pass. By the end of the year, a stock with a 2.8% yield might have a 3% yield.
Here are the results:
--95 stocks passed the first set of tests without missing any, although as just stated, some of the requirements were "eased" from what they will eventually be. I put these 95 stocks into what I call Group A.
--74 stocks did not pass all of the screens, but they fell just short in a single category. Again, mindful of the fact that I am doing this work prior to the end of 2009, I placed these 74 stocks into Group B...they will get another chance.
So a total of 169 stocks passed their way into the next stage of testing. Another way of looking at this is that more than 500 stocks have been eliminated from further consideration. I love to eliminate stocks. I think it goes back to my horse-race betting days. In handicapping a race, I always tried to eliminate every horse that appeared to have no chance to win the race. (Believe me, in the average horse race, some horses can barely trot, let alone compete.) Once I'd done that, I felt like I was gazing on the 3 or 4 legitimate contenders to win the race. It cut out a lot of further work.
Dividend stocks are the same way. I have now eliminated the halt, the lame, and the other stocks that have no chance of being selected as one of the Top 40. I don't have to do any more analysis on the eliminated stocks. I can focus on the real contenders.
On Monday, I will start to put Group A and Group B through the same 5 tests. This time there will be no "easing." The tests will be applied rigidly to select the stocks that will be allowed to pass to stage-3 testing. That said, I will make selective exceptions for a few stocks, based on unusual factors specific to individual companies. There will be just a few of these. Based on past experience, when I am done with stage-2 testing, about 75 stocks will have survived. To them, I will apply the full Easy-Rate scoring system, let them sort themselves out, and thus whittle the list down to the Top 40.
Sidebar: Of 2009's Top 40 Dividend Stocks, 29 passed through to Group A, and another 7 made it into Group B. That's good news: It means that 36 of 2009's Top 40 stocks "did good" in a year when, as you have probably read, dividend stocks in general got scalped, with many cutting their dividends, skipping a payment, or even eliminating dividends altogether. Of the remaining 4, two did not pass because their dividend yields have become too low. That's also good, because it means their prices went up enough to push their yields down...yields and prices move inversely to each other.
I have completed my first pass through all 700 original candidates. To refresh your memory, in the first pass I apply five requirements to each candidate. The five requirements are:
(1) Yield must be > 3.0%. For stocks that have increased their dividend for at least 20 years in a row, the minimum yield is 2.5%. For REITs, the minimum yield is 5.0%, to make up for the increased taxability of distributions by REITs compared to ordinary dividends.
(2) The 3-year total percentage increase in the dividend must be at least 16% (or about 5% annualized). For stocks that have raised their dividends for 20 or more years in a row, the three-year increase must be at least 12% (or about 4% annualized).
(3) The stock must have delivered a positive return in 3 of the past 5 years, including year-to-date in 2009.
(4) The total return for the stock over the past 5 years must be >0%. (For comparison, the S&P 500's return over the same time period has been about 2.6%.)
(5) The stock must have raised its dividend in each of the past 5 years.
During the first pass, I "eased" some of the foregoing requirements. The reason is that I was working with partial 2009 numbers, so I wanted to give stocks every fair opportunity to pass through to the next stage of testing. So, for example, I eased the 3.0% dividend requirement to 2.8% for the first pass. By the end of the year, a stock with a 2.8% yield might have a 3% yield.
Here are the results:
--95 stocks passed the first set of tests without missing any, although as just stated, some of the requirements were "eased" from what they will eventually be. I put these 95 stocks into what I call Group A.
--74 stocks did not pass all of the screens, but they fell just short in a single category. Again, mindful of the fact that I am doing this work prior to the end of 2009, I placed these 74 stocks into Group B...they will get another chance.
So a total of 169 stocks passed their way into the next stage of testing. Another way of looking at this is that more than 500 stocks have been eliminated from further consideration. I love to eliminate stocks. I think it goes back to my horse-race betting days. In handicapping a race, I always tried to eliminate every horse that appeared to have no chance to win the race. (Believe me, in the average horse race, some horses can barely trot, let alone compete.) Once I'd done that, I felt like I was gazing on the 3 or 4 legitimate contenders to win the race. It cut out a lot of further work.
Dividend stocks are the same way. I have now eliminated the halt, the lame, and the other stocks that have no chance of being selected as one of the Top 40. I don't have to do any more analysis on the eliminated stocks. I can focus on the real contenders.
On Monday, I will start to put Group A and Group B through the same 5 tests. This time there will be no "easing." The tests will be applied rigidly to select the stocks that will be allowed to pass to stage-3 testing. That said, I will make selective exceptions for a few stocks, based on unusual factors specific to individual companies. There will be just a few of these. Based on past experience, when I am done with stage-2 testing, about 75 stocks will have survived. To them, I will apply the full Easy-Rate scoring system, let them sort themselves out, and thus whittle the list down to the Top 40.
Sidebar: Of 2009's Top 40 Dividend Stocks, 29 passed through to Group A, and another 7 made it into Group B. That's good news: It means that 36 of 2009's Top 40 stocks "did good" in a year when, as you have probably read, dividend stocks in general got scalped, with many cutting their dividends, skipping a payment, or even eliminating dividends altogether. Of the remaining 4, two did not pass because their dividend yields have become too low. That's also good, because it means their prices went up enough to push their yields down...yields and prices move inversely to each other.
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