Seasonality tells us that statistically the months from the end of October through the end of April are in fact the best months of the year for investing while the six months from May through October (the “sell in May and go away” strategy), are the worst but is there any validity to what’s sometimes known as “the Halloween indicator?” [Let's take a look.] Words: 460

Don’t Miss Your Chance to Catch a Bull Market

Many people missed the market’s enormous appreciation during the latest equity bull market because they were late to the game or chose to sit on the sidelines. If you’re one of those people on the sidelines who has been debating whether to get your feet wet in today’s market—now could be your chance. Citigroup says there’s roughly a 90% chance markets could move higher over the next six months—and a 97% chance over the next year—according to historical data. On average, the market bounces 8.9% the following six months and 17.3% the following year. Words: 1294

So say Frank Holmes and John Derrick (www.usfunds.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Holmes and Derrick go on to say:

The sideline is a crowded place these days as investors have been reluctant to fully embrace equities [but such should be seriously reconsidered given the following:]

Household Savings UP/Debt-to-savings Ratio is DOWN

Household savings for the past 12 months…[were] the highest level ever recorded in dollar terms. You can see from the chart that’s roughly double the amount of savings recorded following the Tech Bubble. In fact, household debt-to-savings ratios are currently at levels so low, they’ve not been seen since the mid-1990s.

History Says Market Outlook is UP

If you’re one of the people on the sidelines who has been debating whether to get your feet wet in today’s market—now could be your chance…J.P. Morgan research says the [recent] seven-consecutive-week losing streak was an extremely rare occurrence during bull markets, only occurring once before in March 1980 and that year the market rallied 15 percent over the next three months.

Historically, summer’s arrival has been good for the market. J.P. Morgan analysts [also] researched the S&P 500’s performance during the June-August period over the last 111 years. They discovered that markets have risen 3 percent on average during this period, with pretty high frequency of up-years (roughly 60 percent). During bull markets, which we believe we’re currently in, the S&P 500 averaged 5 percent with up-years 77 percent of the time…

Investor Sentiment is LOW

One reason we think the market will rise during the second half of 2011 is that sentiment has grown pervasively negative in recent weeks. The American Association of Individual Investors (AAII) survey of investor sentiment, a popular contrarian indicator, showed 77 percent of individuals were bearish in June, one of the lowest readings since the beginning of this bull market in March 2009, according to J.P. Morgan.

Panic/Euphoria Model is DOWN

Citigroup research also showed the pendulum has swung too far toward negativity. Their Panic/Euphoria Model, a proprietary combination of nine facets of investor beliefs and fund manager actions, gauges the mood toward the market. Overly bullish territory (Euphoria) generally signals a market correction is on its way, while a recovery arrives when sentiment is overly pessimistic (Panic). Market sentiment fell into a “panic” at the end of June, which is a good sign for investors.

Dow Theory Projects Optimism

It’s likely that ardent followers of Dow Theory can hardly contain their excitement. This technical indicator for the Dow Jones Industrial Average (DJIA) is on the verge of confirming the market’s bull status. Marketwatch’s Mark Hulbert wrote yesterday that a bull market would be confirmed by Dow Theory if the DJIA closes above its April high of 12,810.54… [Go here to get the current DJIA number.]

Global Economy Improving

If this technical data doesn’t convince you, maybe improvement in the global economy will.

a) Greece: We received our first dose of clarity on the Greece sovereign debt issue and it looks like calamity has been averted.

b) China: The Chinese government, which has been tightening policies to keep the country’s economy from overheating, announced its third interest rate hike this year. This likely is the end of China’s tightening measures and its economy should react positively.

 c) U.S.: [While it is] true today’s jobs report [in the U.S.] was dismal and second-quarter 2011 U.S. GDP growth is expected to come in [at only] around 2 percent for the second-straight quarter there is also positive momentum building for the U.S. economy. Manufacturing strength is the foundation of a growing economy, and currently both the services and manufacturing Purchasing Managers Index (PMI) remain above the benchmark 50 level… indicating expansion.

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One bright spot is the auto industry, our trusty indicator of the global economy’s fortitude…A supply shortage and slowdown in sales as a result of the Japanese earthquake caused many car manufacturers to initiate their annual plant shutdowns early this year. The shutdown time is used to perform maintenance on facilities and restock supply. Automakers such as Ford and General Motors have already completed their shutdowns and are “starting their engines” for a strong second half.

U.S. Auto Production UP

U.S. auto production is forecasted to be up 16 percent in July over the previous month and overall production during the third quarter of 2011 is expected to be up 86 percent on a quarter-over-quarter basis. ISI says this would likely raise America’s real GDP by 1 percent.

Who will buy all these cars? Chinese and Americans and, despite the tightening measures mentioned above, Chinese citizens are expected to purchase 18.5 million vehicles this year, which would be about a 3 percent increase from 2010. ISI says owning a car remains the “#1 most desired consumer durable” in China and estimates the country could reach sales of 30 million per year by 2030.

At home in the U.S., vehicles sales have been on an uptrend since early 2010. The chart shows current levels are still well below the highs of the mid-2000s but are comparable to the early 1990s—just about the time the U.S. economy was beginning to speed up.

Negative Influences on the Market Exist

The biggest question mark surrounding the direction of the market right now is geopolitical. How the debt ceiling issue is resolved and how companies digest new regulations could decide whether the bull market gets caged. J.P. Morgan-Chase CEO Jamie Dimon passionately told the Federal Reserve last month that some of the floated ideas could spell “suffocation through regulation” for the U.S. economy. Dimon questioned whether anyone had “bothered to study the cumulative effect” of all the new regulations. PIMCO CEO Bill Gross has echoed similar statements. We share many of these concerns but feel the fundamentals of U.S. economic growth can power through these regulatory hurdles.

Conclusion

Long-term investors must remember that it’s time in the market, not timing the market…Investors who catch the bull and participate could see gains over the next few months.

*http://www.usfunds.com/investor-resources/investor-alert/

Related Articles:

1. These Indicators Suggest S&P 500 Overvalued In Excess of 40%!  http://www.munknee.com/2011/07/these-indicators-suggest-sp-500-overvalued-in-excess-of-40/
2. Market Crash Will Hit By Christmas 2011! Here’s Why  http://www.munknee.com/2011/07/the-sp-500-is-worth-only-910-get-out-or-lose-big/
3. S&P 500 Likely To Top Out at 1400 – 1500 & Then Topple to 400! Here’s Why http://www.munknee.com/2011/02/uncanny-relationship-with-nikkei-1929-crash-suggests-sp-500-about-to-top-out-and-then-tumble/
4. P/E Ratio of S&P 500 at 9 Month Low! Is It Time to Buy?  http://www.munknee.com/2011/06/pe-ratio-of-sp-500-at-9-month-low-is-it-time-to-buy/
5. Will a Black Swan Event Cause the S&P 500 to Drop by 40%?  http://www.munknee.com/2011/06/will-a-black-swan-event-cause-the-sp-500-to-drop-by-40/
6. Stock Market is Due for a 15-20% Correction – Here’s Why http://www.munknee.com/2011/06/stock-market-is-due-for-a-15-20-correction-heres-why/
7. A Violent Correction Is Coming For the S&P 500! Here’s Why  http://www.munknee.com/2011/06/a-violent-correction-is-coming-for-the-sp-500-heres-why/
8. Why a Major Stock Market Correction is Imminent  http://www.munknee.com/2011/05/why-and-how-best-to-play-a-major-stock-market-correction-is-imminent/
9.  S&P 500 is 45% Overvalued According to Reversion to Mean Analysis!     http://www.munknee.com/2011/01/these-2-historical-charts-show-how-high-then-how-low-the-sp-500-might-go/
10. How Mean Will the S&P 500′s Future Regression to Trend Be?       http://www.munknee.com/2011/01/how-mean-will-the-sp-500s-future-regression-to-trend-be/
11. Surprise! Limited Downside Risk Exists In S&P 500  http://www.munknee.com/2011/06/surprise-limited-downside-risk-exists-in-sp-500/

*http://dshort.com/articles/valuation-indicator-overview.html

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

[Such a liklihood is not that far-fetched given the fact that]:

Here is the picture , first of estimated earnings, then of price/earnings (P/E) ratios:

No signs of speculation

An ongoing worry is that the stock market has risen too high and is due to drop. One way to answer that belief is to focus on the fundamentals, above. Another is to look at what is not present that would support the worry: Speculation.

Here are some key areas that illustrate the lack of stock market fever:

1. The doubling since March 2009 is based on fundamentals…The reversal of the early-2009 emotional drop and the subsequent fundamental improvement produced the increase, not speculation and, therefore, investor worry that the end of QE2 will cause a stock market drop is unfounded.
2. Every positive can be countered by a negative. This truism is visible in the media every day and this point/counterpoint situation is the description of a healthy market, not a speculative one.
3. Valuations are sound. [As mentioned in the opening paragraph , and well worth repeating,] today’s stock market valuations are conservative compared to typical bull markets that are accompanied by investor enthusiasm…

Clearly, a 20 P/E would be a time to be wary buy today’s DJIA level of 12,600 (12.6 P/E ratio) is not something to worry about – it’s something to take advantage of.

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Conclusion

With the first quarter earnings reports providing continuing good news for the stock market… [and] forecasts of more to come, U.S. stocks offer an excellent investment opportunity. Moreover, with alternative investment speculation suffering, the timing could be good [as well].

*http://investmentdirections.com/2011/05/16/dow-20000-how-it-could-happen/

Editor’s Note:

Stock Market Will Reach Record Highs Within 2 Years!

Recent market action is causing much anxiety [with] pundits hyperventilating about sovereign loan defaults. [Now,] after Ireland, their attention is focused on Spain and other European countries. The world seems to be filled with worryworts (which is bullish as the market always climbs a wall of worries) [- but worry not]. In terms of magnitude and duration, this bull market will surprise all. In fact, what investors are witnessing is one of the greatest bull markets on record. Within two years, the DJIA and the S&P will reach record highs. Beyond that, the S&P could well double from the current levels. Words: 852

So says Leon Tuey  in a Financial Post article* which Lorimer Wilson, editor of www.munKNEE.com, has reformatted and edited [...] below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Tuey goes on to say:

Lest you think I’ve taken leave of my senses, consider the following:

Earnings Will Explode

1. History shows that the more severe the economic downturn, the more powerful and more enduring is the subsequent bull market. This has been true for the last 100 years. In a severe economic downturn:

a) the Fed eases more aggressively and maintains an accommodative stance much longer than normal…. [and]

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b) corporations become leaner and meaner…[putting them] on sounder financial footings [so that] when the economy rebounds, profit margins explode. Indeed, this is precisely what is happening. Not surprisngly, earnings have been beating estimates and continue to do so [and] when the recovery gathers a real head of steam, earnings will explode…

Tech and Financial Sectors Will Go Much Higher

2. The S&P 500 Index is a weighted index [and] with techs and financials being the biggest weights…

a) Many of the large tech companies have broken out of long bases which point to a secular bull market. These stocks will reach heights investors will never believe. Moreover, despite the spectacular gains achieved to date, these stocks remain attractive from a valuation standpoint as many are selling in the 12X-15X earnings multiples, but growing in the 18%-25% range and companies are sitting on mountains of cash…

b) Financials, the second biggest weight on the S&P, have become leaner and meaner. After more than 15 months of consolidation, the sector is re-accelerating and starting to show outperfomance. The bull market has resumed for the financials.

Given their heavy weighting, continued strength in the tech sector and the re-acceleration in the financials will give the popular market averages a huge lift.

3.5% Growth Predicted in 2011

3. Despite the widespread concern regarding the economy:

a) many economy-sensitive issues… are posting record highs and telling investors that growth is re-accelerating

b) many of the late-cycle sector such as aluminum, coal, energy, paper and forest, and steel… [are] bottoming and starting to turn up.

Indeed, this week, Alan Greenspan is predicting 3.5% growth in 2011. As normal, at this stage of the cycle, strength broadens.

Wall of Worry Bullish for Market

4. Sentiment backdrop is ideal for a powerful, enduring bull market. In the last ten years, investors have been traumatized by two huge bear markets – the burst of the tech bubble and the burst of the financial bubble. Pain remains fresh in their memory. Although the bull market is more than two years old, investors remain wary and keep finding things to worry about. This is a bullish sign because  the market always climbs a wall of worries. It is when investors stop worrying and become euphoric that it is time to really worry.

The Market is the Leading Indicator

5. Broad market measures such as the NYSE Advance-Decline Line and the Value Line Arithmetic Average have been posting record highs. Investors must appreciate the fact that the economy doesn’t lead the stock market. The market leads the economy for the market is a leading economic indicator. When the economy is booming and full employment is at hand, the market is about to roll over.

Conclusion

The “deflationists,” the “double dippers,” those who were babbling about “head-and-shoulders” top, the “Death Cross,” the “Hindenberg Omen,” and those who told investors to “sell everything” earlier this summer, clearly don’t have any understanding or appreciation of the points detailed above. [You now do so there is no need to be a worrywort. Just position yourself to take full advantage of what is unfolding:]

The stock market will reach record highs within the next 2 years and double that in the years beyond!

 

* http://business.financialpost.com/2010/12/20/one-of-the-greatest-bull-markets-in-history/#ixzz18mwnq72G

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
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