The official blog of Hays Advisory

Hays Advisory's Blog is Moving to a New Platform

noreply@blogger.com (Hays Advisory, LLC) — Fri, 21 Feb 2014 11:00:00 +0000

Going forward, we will be moving our freely available market commentary from this blog platform to an email-based platform. Updates will include two regular weekly reports - one focusing on global market performance and one focusing on the US stock market. We will also publish occasional special reports focusing on hot topics in the market as part of this new platform. You can learn more about these reports and see recent publications by clicking here.

So as a subscriber to this blog, beginning Monday morning, instead of receiving an update from our blog, you will receive the Hays Weekly World Wrap via email, and then after that, you will receive all of our future publications via email.

We have enjoyed having you as a blog follower these past few years, and we look forward to continuing to share our thoughts on the markets with you via our new email-based platform.

Back Where We Started

noreply@blogger.com (Hays Advisory, LLC) — Tue, 18 Feb 2014 16:48:00 +0000

The S&P 500 is basically back to where it started the year following the rally over the past few weeks, as you can see in the chart below.

I'm also seeing that the short-term oscillators have moved into those overbought zones that, for the last few years, have produced a temporary topping action, which you can see in the charts below.

Also, I have seen improvement in investor psychology, but not nearly enough to convince me that the eventual low-risk buying juncture is here, but we'll just have to wait and see how this plays out from here.

Don Hays

Please see important disclosures at the bottom of this page.

Checking up on Market Internals and Psychology

noreply@blogger.com (Hays Advisory, LLC) — Mon, 10 Feb 2014 16:38:00 +0000

As you can see in the chart below, the "market" reached a very oversold point recently (in the short-term, as measured by the McClellan Oscillator - blue line), which made a relief rally very likely. That has now moved the McClellan Oscillator back into neutral territory.

In the next chart, you can see the very bullish "dumb money" Rydex traders have quickly reversed directions and are too now back in neutral territory.

And lastly, as we look at those investors that have traditionally been very astute, we see our Gambill Insider Ratio has also moved from being very bearish as those insiders were selling their stocks to a less bearish position as they've started to warm up with a little buying.

I like the improvement; however, it's not yet enough to make me doubt my short-term (3-6 month) caution.

Don Hays

Please see important disclosures at the bottom of this page.

Checking up on China

noreply@blogger.com (Hays Advisory, LLC) — Mon, 27 Jan 2014 16:54:00 +0000

Out of the blue in these last few weeks, we started to hear some negative news from China. Remember, this has been an ongoing concern from the "chicken littles" for the last 10 years, but they were so wrong, or so early, that they have quietened down in the last few years. Last week, however, we got these news clips.

Let me start off with a chart from Ed Yardeni's blog. (I hope you are taking advantage of this excellent site that is one of my favorites.)

In Yardeni's chart above, you can see that recent drop in China's M-PMI released last week.

Also, in a recent report, I mentioned how the Baltic Dry Freight Index had improved, which often tells of an improvement in the Chinese economy.

That did occur...temporarily; however, in the last week, those gains have dissipated, adding to the concerns of the Chinese problems.

Don Hays

Please see important disclosures at the bottom of this page.

21-Day Oscillator is Still in Upward Trend

noreply@blogger.com (Hays Advisory, LLC) — Tue, 21 Jan 2014 16:03:00 +0000

Today, let's take a quick look at a couple of examples of Psychology that tells us again to be a "little" careful. We've given you multiple examples in the last few weeks, but here are a few more.

In the chart above, you can see that in many cases, the greatest number of stocks making new 52-week highs reaches their highest number while the current rallies are still relatively early in their maturity. Then, we start getting fewer and fewer of the stocks participating.

The next chart takes a look at the McClellan and 21-Day Oscillators.

The 21-day oscillator (orange line above) is somewhat in that same vein as the net hew highs indicator, showing the very "overbought" characters relatively early, and then as the momentum of the bullish advance deteriorates, the market indices themselves may continue to advance (and the 21-Day Oscillator improves), but internally, the stock market correction continues.

Don Hays

Please see important disclosures at the bottom of this page.

A Message From Investor Psychology

noreply@blogger.com (Hays Advisory, LLC) — Mon, 13 Jan 2014 16:28:00 +0000

In my four decades of trying to figure out this market puzzle, the one area that requires the most flexibility is Psychology.

This morning, let's take a quick look at the Rydex Ratio, which is a measure of "dumb" money sentiment.

You can see in the prior chart that these "dumb" investors have moved into a very bullish mood, which is negative. The next chart shows you the "mirror image."

The smart corporate insiders are very bearish.

Overall, our Psychology Composite continues to tell us to go slow in the short-run.

Don Hays

Please see important disclosures at the bottom of this page.

Not Too Hot, Not Too Cold

noreply@blogger.com (Hays Advisory, LLC) — Mon, 06 Jan 2014 15:58:00 +0000

Last year was indeed a fantastic year to be a stock investor. The move was extremely persistent, and continued with very few pauses from the low in November 2012. At the same time, as you look at the chart below of earnings projections, you see that corporate earnings are walking the "typical" trendline that has been intact since 1980 - not too hot and not too cold.

Today, as the new year begins, it is touching the top red line, meaning slightly overbought. I also see in the chart below that the P/E ratio (based on expected earnings) has now moved to 15.3. I expect to see this move up close to 17 (in the next 12-18 months - maybe this year), but so far, this upward readjustment has been fairly fast, so is it time for a little digestion, while earnings pick up?

Although we're still bullish for the next few years, I suspect that 2013 used up some of our immediate potential, especially as we start the year with many of our indicators measuring an "overdone" emotional burst.

Don Hays

Please see important disclosures at the bottom of this page.

What Will the New Year Bring for Stocks?

noreply@blogger.com (Hays Advisory, LLC) — Thu, 02 Jan 2014 15:24:00 +0000

Ladies and Gentlemen, I proudly present to you the stock performance from 2013!

Wow! What a year? As we sit here on the first trading day of 2014, we have just experienced a year when the Dow Jones Industrial Average moved up 26.5%, the S&P 500 moved up 29.6%, and the NASDAQ Composite soared by 38.2%.

We are expecting another very good year for this year in stocks, but do expect a little different path to get to the finish line. Last year stocks gained right out of the chute, and this year we would expect a little more restraint, maybe even a correction as we digest 2013's victories and also fourth quarter earnings. You can see below from our overbought/oversold indicator that the market could certainly stand a little resting period, and we think it may get it.

It is an exciting time to be an investor, and we certainly are excited at following the action of this coming year.

Don Hays

Please see important disclosures at the bottom of this page.

How High is High for This Stock Market?

noreply@blogger.com (Hays Advisory, LLC) — Mon, 16 Dec 2013 16:58:00 +0000

We're certainly winding down 2013, like it or not. With the outstanding stock market performance, we sort of hate to put it to bed. We started the year with so much investor concern, and as we end the year, we've speculated that investors are just now entering the phase when they feel a little relief, but their "hope" for the future is still iffy. Their feelings seem pretty confident when you see the S&P 500 has moved up from 1425 to Friday's level of 1775 - a gain of almost 25%.

Our Valuation Gauge is based on three factors - the 12-month forward earnings estimate (normalized), the inflation rate, and a blend of bond yields. Since bond yields are often distorted due to Fed action, we also put a cap in there. As we look back on December 2012, we see that our Valuation Gauge was showing the S&P 500 to be extremely undervalued.

Today, we continue to see our gauge at the extremely undervalued level (19.61% undervalued). After such a banner year for stocks, I'm sure skepticism is very high; however, I'm looking forward to see what will be in store for the stock market in 2014.

Don Hays

Please see important disclosures at the bottom of this page.

Two Important Charts

noreply@blogger.com (Hays Advisory, LLC) — Mon, 09 Dec 2013 16:31:00 +0000

Today, let me show you some charts (from the Calculated Risk blog) of how the public is beginning to see an escape from the economic mire of the last four years.

It is no coincidence that one of the best market indicators is to buy when this consumer sentiment index drops under 70.

You can take that to the bank, and those intense pessimistic times are a learning experience that produces good results as the problem of the moment is forcefully addressed. So now, we see a move back up to 80, and that is in the range when the public finally starts thinking that they may have future opportunity if they invest well and work hard.

Also, corporate profits are soaring - despite the headlines - and the unemployment rate is declining.

Pay particular attention to the slope of that line, since it will continue (and maybe accelerate) in the coming year as companies play catch-up.

Don Hays

Please see important disclosures at the bottom of this page.

Psychology's Outlook is Still Cautious

noreply@blogger.com (Hays Advisory, LLC) — Mon, 02 Dec 2013 15:08:00 +0000

We repeat, the short-term is by far the least predictable trend of the market, but for fine-tuning portfolios, we do pay attention to the indicators shown below.

As you can see, in mid-September of this year, the indicators above had moved into the red zone, which makes us a little more cautious on short-term buying. So far, even though the breadth of the stock market has deteriorated somewhat, the market indices themselves have continued to make new highs.

Despite that, however, we are still holding to our short-term skepticism a little. We've also seen our Psychology Composite bobbing and weaving into the P5 zone, which also often precludes a little resting period for stocks.

Don Hays

If you are a subscriber to HaysAdvisory.com, click here to read our recent reports. If you would like to learn more about the research and commentary offered by Hays Advisory, click here.

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Don Hays on Yahoo! Finance

noreply@blogger.com (Hays Advisory, LLC) — Wed, 27 Nov 2013 20:06:00 +0000

Be sure to check out Don Hays' latest interview with Matt Nesto of Yahoo! Finance's Breakout blog. Click on the image below to see today's video.

Don Hays on Yahoo! Finance

noreply@blogger.com (Hays Advisory, LLC) — Tue, 26 Nov 2013 19:47:00 +0000

Today, Don Hays shared his outlook on the market with Matt Nesto of Yahoo! Finance's Breakout blog. You can watch the video by clicking on the image below.

Please see important disclosures at the bottom of this page.

Forward Earnings Update

noreply@blogger.com (Hays Advisory, LLC) — Mon, 25 Nov 2013 16:47:00 +0000

Yikes!! The forward P/E ratio for the S&P 500 is now at 15.1!! Is that scary?

Not really. In fact, it is pretty obvious when you look at today's inflation, and the prospects of inflation for the next decade as the Technology Revolution, low interest rates, and the dramatic growth in the world's labor force in this new flat world affects productivity and wage rates. P/E ratios are a direct reflection of productivity and optimism.

So as productivity and inflation remain low, we will see the blue line in the chart above continue to move closer to the red line. That means today, with normal investor emotions, the P/E ratio should be 17.3, not a "lowly" 15.1.

All of this has to do with the cyclical and secular bull market.

Don Hays

Please see important disclosures at the bottom of this page.

Everybody's Getting Bullish

noreply@blogger.com (Hays Advisory, LLC) — Mon, 18 Nov 2013 16:43:00 +0000

Should I expand that title to say, "Everybody's getting bullish, but you and me?" I have to admit, there is so much positive insight for the long-term trend to go up substantially from here, but we're sitting here on the cautious side for now.

Almost all of our Psychology indicators are either in a negative state or close to it. For instance, one of the best indicators over the last 15 years has been the asset ratio of the Rydex mutual funds. The speculators that buy these funds are more in the public speculator category, and they are notoriously wrong at extremes.

The "detrended" version of this indicator is showing a bullish bias, which means we're receiving a bearish signal from this indicator at this time. Over the last 10 years, we've had other signals similar to today; however, you have to observe other parameters to see how much impact this negative signal will have.

Don Hays

Please see important disclosures at the bottom of this page.

Checking Up on the Rule of 20 P/E

noreply@blogger.com (Hays Advisory, LLC) — Mon, 11 Nov 2013 15:45:00 +0000

P/E ratios are meaningless (in my opinion) unless you know what productivity is doing (which translates into inflation expectations). It is no surprise that productivity has soared. It seems simplistic, but it is still hard to beat the "Rule of 20" to determine what P/E's "should" be.

The Rule of 20 P/E is determined by taking 20 (a historical norm) and subtracting the inflation rate, which is at 17.2 today. We plot this chart daily on our website. You can see the deviation of the blue line (Forward P/E) and the red line (Rule of 20 P/E). In normal times, they are very close to each other. If fear explodes and investors are under-valuing stocks, the blue line is under the red line, and vice versa. But over time, when emotions and logic returns to normal, the two lines converge.

That is most definitely what is happening today. You can tell when investor sentiment is changing by measuring the deviation between the two lines. As you can see, the deviation started converging right after that 2011 correction.

Don Hays

Please see important disclosures at the bottom of this page.

Time to Hold

noreply@blogger.com (Hays Advisory, LLC) — Mon, 04 Nov 2013 15:50:00 +0000

So here we sit. The old song of "you got to know when to hold them, and when to fold them," is very appropriate. I still consider this a time to hold them, but I don't think it is time to start getting more aggressive. Typically in bull markets when I continue to be aggressive, you have a strong enough economic environment that produces higher bond yields. That has happened a little, but if you look at bond yields, it was more of an emotional blip (that seems to be correcting) than a sustainable move up in yields. Part of this is international based, but a big part of it is still a result of the Fed's buying of bonds.

One of our favorite indicators is the AAII 3-week average of their weekly survey (bottom strip in the chart below). This is a little slower, and also just one service, but you can see that the last three weeks' results has our indicator right back in the red zone - the individual investors are a little "too bullish."

So with this cautious chatter, why am I not folding. The reason is simple. This is only one part (important, but still only one part) of the equation, but the Fed is still pumping.

Don Hays

Please see important disclosures at the bottom of this page.

Checking Up on a Few Psychology Indicators

noreply@blogger.com (Hays Advisory, LLC) — Fri, 01 Nov 2013 16:25:00 +0000

Today, I want to quickly look at two charts. As you review both of these charts, step back for just a second and look at the volatility of the signals. They have been very accurate and timely in their signals, but you can see that they are also very dynamic. They do oscillate depending on what happens in the market, which we find with many of our Psychology indicators.

First, the Gambill Insider Ratio below shows the corporate insiders are reading all this news and seeing the consumers back off from their prior spending binge, so now, we find them clearly in the red zone, meaning they are selling more of their stock than they are buying.

Next is one of our indicators that has foretold in the past what the smart big money option traders are doing. When these "traders" are buying puts, or hedging a lot, you see this indicator move up into that red zone. When they reduce their put/call ratio that means they are getting more positive on the outlook. You can see that they have been sometimes in the red zone, but now are actually getting more bullish - still neutral, but not in the all-out cautious state. This is a good sign, and also from past history we know this indicator is somewhat longer-term in scope.

I can show you a lot of other Psychology indicators, and most of them like the first two have moved into the cautious zone. But most of them also do oscillate a little more, and are a little shorter-term in nature.

Don Hays

Please see important disclosures at the bottom of this page.

S&P 500 Valuation Update

noreply@blogger.com (Hays Advisory, LLC) — Mon, 28 Oct 2013 14:19:00 +0000

Earnings for the just reported 3rd quarter were not really anything to jump up and shot about. In general they have achieved expectations, but leading into the quarter, analysts had been downgrading their expectations. With the combination of strong S&P 500 performance and so-so earnings, we now see the S&P 500 selling at a forward P/E of 14.8x.

Of course, it is impossible to determine from the chart above what is normal for the P/E. One of the better ways throughout history was to compare the P/E ratio to the inflation rate, and using our Rule of 20, you can see below that this discipline says the P/E in normal emotional times could go up to 17.5 before getting back to that "normal" red line projection.

It is hard to believe in this negative environment for consumer sentiment expectations that investors are actually returning to a "normal" environment of valuation. Of course, with the Fed pumping reserves into the system through their massive bond buying program, and with unemployment still relatively high putting a lid on wages, we could see that red line (Rule of 20) come down somewhat, but the spread between the two lines gives a lot of room for a continued improvement in P/E ratios and a higher stock market.

We say this, but we also continue to suggest that the short-term has enough risk involved to keep some money on the sidelines in case we do see any overall correction.

Don Hays

Please see important disclosures at the bottom of this page.

Breakout Charts from Last Week

noreply@blogger.com (Hays Advisory, LLC) — Mon, 21 Oct 2013 15:06:00 +0000

The chart of FedEx is sending a powerful message to skeptics about the global economy (as well as the US economy) finally digging its way out of the funk its been in. The story remains - bull markets don't end until the dual mandates (of the Fed) start setting speed limits on monetary liquidity. This chart is telling a story that we will start to hear of more optimism soon.

Next, let's look at an indicator that shows how powerful the action in the market was last week.

We've been showing you the McClellan and 21-Day Oscillator with the premise that we wouldn't be turning extremely bullish on the short-term until the 21-Day Oscillator moved down to at least the -50 line. That remains the case...for the short-term outlook. But you can see above that the move on Friday went a long way to eliminating the dysfunction we've been seeing internally. We can still find a few warts, but the great bull market continues to surge ahead.

We will still be playing the short-term with a conservative note until we see a more opportune set of conditions, but for the more important long-term participation in this powerful bull market, we continue to see much higher prices in the years ahead.

Don Hays

Please see important disclosures at the bottom of this page.

Looking Forward to November

noreply@blogger.com (Hays Advisory, LLC) — Mon, 14 Oct 2013 15:14:00 +0000

The stock market itself is very volatile, or at least has a lot of changing volatility. Since May (when bond yields shot up this year), we have seen the market following the trends of stock market volatility. We don't normally escalate the oscillators into primary status. It still is not considered primary, but with so many of our primary Psychology Indicators still in a "go slow" status, we're watching these oscillators closely for short-term advice.

The orange line is our flag. The two levels are +100 for short-term caution, and then a transition to -50 for a green light. As you can see, the weakness early last week did not trigger the -50 level. Hence, we still have our short-term posture in the cautious side.

All of this is short-term advice. Playing the seasonal tendencies, we're guessing that November will once again find all the indicators, short and long-term, aligning in positive levels.

Don Hays

Please see important disclosures at the bottom of this page.

Will the Stock Market Correct in October?

noreply@blogger.com (Hays Advisory, LLC) — Mon, 07 Oct 2013 15:30:00 +0000

As we ended August of this year, many of our overbought/oversold indicators reached levels that told us the odds were high that the stock market would rally in the next 30-60 days. You can see below that the percentage of stocks that were trading above their 50-day moving average reached that magic "30" level that "almost" always indicates an impending rally.

True to life, we did experience a rally, and depending on where you are invested, the rally has produced some very nice gains. We've noted how growth stocks have been very strong, while many of the more defensive value stocks have started to lag - really a new trend for the first time since 2011. This is a very good sign, but back to the chart above. We need to point out that the rally from that oversold juncture has not exhibited as much "oomph" as you would normally like to see. The downward slope in this participation rate has become even more visible.

Of course, if you are a growth stock investor you don't mind so much, but with some of the other evidence, it does continue to set up our thesis that this stock market is ready to correct.

Don Hays

Please see important disclosures at the bottom of this page.

Global Markets Update: Monday, October 7, 2013

noreply@blogger.com (Hays Advisory, LLC) — Mon, 07 Oct 2013 13:32:00 +0000

The line on our multi-asset chart is getting longer as we enter the 4th quarter. Commodities and Fixed Income are down and the US is dominating.

Its nice to see the international markets making a run at the US late in the year, and its interesting to note that international's run was late in the year last year. Could the same be occurring now? Valuations certainly favor international vs. US.

US Healthcare, Consumer Discretion, Financials and Industrials are the sectors beating the US market this year. Small Caps have more than a touchdown lead on Large Caps at the start of the 4th quarter.

Keith Hays & Justin Wood

Please see important disclosures at the bottom of this page.

How Are You Feeling?

noreply@blogger.com (Hays Advisory, LLC) — Mon, 30 Sep 2013 15:41:00 +0000

Over these last 15 years, you have been whip-sawed unmercifully and the headlines have done nothing but send you down the wrong path. Are you looking out for black swans or sunshine today? I think I know that answer already for the majority of you as we look at the historical records of consumer sentiment.

In the graphic above, you can see the relation between consumer sentiment and the stock market over the last 35 or so years. You can see how we've now spent almost six years with consumer sentiment under the "80" level now. You can see how this has only occurred a few times over the time frame shown above and that periods such as this have represented tremendous potential. You can see in the charts how periods in the past with similar levels of skepticism and fear as today have produced massive bull markets in their wake.

We all have our logic that gets distorted based on what has happened in the last few years. This has been a very volatile time, and we live in a world that is so much different than our past believes is normal. That is one reason that it took so long (15 years) for most investors to really believe that lower inflation and lower interest rates were here to stay back in that 1980 to 1995 period.

This, my friends, is the Technology Revolution, and as a result, "the new Flat World." The good news is that of all the countries in the world, the US comes out of these last 15 years of volatility stronger in a competitive sense against every country in the world. That is what this stock market is telling us and the message is far from over.

Don Hays

Please see important disclosures at the bottom of this page.

The Countdown to October

noreply@blogger.com (Hays Advisory, LLC) — Mon, 23 Sep 2013 14:53:00 +0000

I have to admit that time has cauterized my dread of Octobers somewhat. Obviously, 2008 had a tumultuous October as every hedge fund and over-leveraged investor was forced to hit the bid, no matter how low that bid was, as they scrambled to go to cash. October 1987 and October 2008 were the worst October routs we have been subjected to in our time, but not the only ones.

Today, we have a Psychology Composite reading of P4, but that slight negative is more than neutered by the extreme bullishness of our Monetary Composite at M2. Our Asset Allocation Matrix, developed over many years of watching the ebbs and flows of markets, matches current readings on our Psychology and Monetary Composites, and holds our hands as we get into this often "rocky" period of October. Our Matrix continues to tell us that this bull market is alive and well, but that P4 reading, along with our overbought oscillators, suggests that the next move on this market will be down for the short-term.

So, we don't expect this October to be very good, but with our Monetary Composite so positive, we also don't expect any calamities.

Don Hays

Please see important disclosures at the bottom of this page.