The official blog of Hays Advisory

What Worries are at the Forefront of this Market?

noreply@blogger.com (Hays Advisory, LLC) — Mon, 27 Feb 2012 16:51:00 +0000

The tides are turning. We've spent much of the last 7 months worrying about Greece...and Spain, and Italy, and Portugal, and...today, we wake up on February 27th, 2012, and we find that in the midst of all of our worries, the S&P 500 seems to have produced a new high, along with most of the other indices, eliminating the damage from that 2011 correction.

But today, we can forget about Greece and all of those other debt problems. Now we can start to stew over the price of energy, right? There is little doubt that the problems in Greece and the price of oil have an impact on the economies of the world...and the performance of stocks. However, there are a zillion other parameters out there that also affect the economy and the markets, and we measure a basket of those parameters with our Asset Allocation Model, which is giving us the following signal this morning.

There is most definitely an art to investing, but the science far outweighs the art aspect. The science, that is not hyped by the flood of misconcieved analysis from the "guru of the moment," is saying loud and clear that long-term investors still have the historical odds in their favor. As a result, investors, in our opinion, should continue to have maximum exposure to stocks and a minimum exposure to bonds and cash.

That is not to say we aren't concerned about Greece or the price of gas, but our Asset Allocation Model suggests that these worries are being overemphasized. We recognize, however, that some of these key worries have the potential of clouding the investment scene for a while. This fits into our thoughts concerning our recent Psychology Composite rankings of P4 and P5, which often precede a volatile short-term environment.

We've been taking this similar line of thought for the past several weeks, and today we continue to expect that while the short-term may get iffy, our long-term outlook remains very positive.

Don Hays

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Global Markets Update: Monday, February 27, 2012

noreply@blogger.com (Hays Advisory, LLC) — Mon, 27 Feb 2012 14:06:00 +0000

As we begin the ninth week of this year, here's a quick look at where global markets currently stand:

The World has started 2012 up 10.8%, with the US up 9% and the World x US up 12.7%.
Emerging Europe currently leads all regions this year up 24.2%, with Latin America in second up 18.1% and Asia in third up 12.8%.
The G7 Countries are all up between 8-14% so far this year, with the exception of Germany, which is up over 20% year-to-date.
India, Brazil and Russia are leading the BRICs in 2012 each up over 20%, while China is in last only up 16.6% for the year.
In the US, Technology leads all sectors up 14.8% for the year, while Telecom and Utilities are currently negative for the year.

Keith Hays & Justin Wood

If you are a subscriber to HaysAdvisory.com, click here to read today's World Wrap. If you would like to learn more about the research and commentary offered by Hays Advisory, click here.

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Dysfunction in US Sectors

noreply@blogger.com (Hays Advisory, LLC) — Fri, 24 Feb 2012 17:49:00 +0000

As we have noted several times this year, our Psychology Composite moved to P4 on the last day of 2011. However, with our Monetary and Valuation Composites still at their most positive rankings of M1 and V1, respectively, that was still very, very good.

January 2012 was one of the strongest performing months in history as a broad range of stocks rallied, and we saw 87% of all stocks in the S&P 500 and S&P 400 move above their 50-day moving average. That was good...but it also brought out that overbought status that usually calls for either an overall market pause or a very dysfunctional rally from that point (see the chart below). Then, on February 15th, our Psychology Composite moved to P5. It has since returned to P4, but right on the border-line of that slightly weaker ranking.

Dysfunction? Yes, with a capital "D."

Since the beginning of this month, only two S&P 500 sectors have prominantly outperformed the broad index - Energy (+3.2%) and Technology (+2.2%). Then, we've seen Consumer Discretion (+0.5%) and Financials (+0.1%) have very slightly outperformed the S&P 500. But that is only 4 out of the 10 sectors that are carrying the new high levels for the index. Mr. Market is an artist at deception, and that is why our sector studies are so important.

In the chart below, you can see the updated levels and trends of those stocks in the S&P 500 and S&P 400 above their 50- and 200-day moving averages. Be sure to notice that the 50DMA trend has moved lower since its high from a few weeks ago.

Click on the image above to view a larger chart.

Then, when you break these trends for the indices down to the sector level, you can see some interesting differences between the performance of large-cap sectors versus that of the mid-cap sectors.

Click on the image above to view larger tables.

This week the stock market and the market of stocks or sectors is totally different. As you observe the tables above, you can see that the large-cap (S&P 500) Energy sector is very strong, but the mid-cap (S&P 400) Energy sector is still very mediocre. The same applies to the Materials stocks and sectors. On the other side, however, you see the large-cap Healthcare sector close to the bottom of that comparison, while the mid-cap Healthcare sector is very, very strong.

So today, the advice we've been relaying in our broad market comments lately certainly applies - walk slow, pick your spots before establishing new positions, and wait on a good entry point close to support.

Don Hays

If you are a subscriber to HaysAdvisory.com, click here to read today's Weekly Sector Report. If you would like to learn more about the research and commentary offered by Hays Advisory, click here.

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What Dysfunctions Exist in Today's Stock Market?

noreply@blogger.com (Hays Advisory, LLC) — Thu, 23 Feb 2012 16:18:00 +0000

Today, as we've been saying, the long-term is still very bullish, but the stock market has been overbought, and there are definite signs that this slightly out-of-breath market is going to let the hottest stocks of the last 4-6 weeks take a breather.

It is always interesting to watch the interaction between the Dow Jones Industrials Index with that of its cousin index, the Dow Jones Transportation Index. You can see the recent divergence between these two indexes in the chart below.

Click on the image above to view a larger chart.

Of course, rising gas prices have had some impact on the Transports, but it is important that we don't box ourselves into looking for some reason - besides dsyfunction - for the non-confirmation.

It is most definitely a market of stocks, and not a stock market. With the market conditions such as they are, we're seeing personality changes that will probably last at least a few months as the overbought conditions (especially of the hot stocks) start to cool a little.

Don Hays

If you are a subscriber to HaysAdvisory.com, click here to read Monday's report. If you would like to learn more about the research and commentary offered by Hays Advisory, click here.

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Will the Next Worry be a Fed Funds Rate Increase?

noreply@blogger.com (Hays Advisory, LLC) — Tue, 21 Feb 2012 15:43:00 +0000

Last week, for a very brief stay, our Psychology Composite moved to P5, which is a more cautious level than the previous level of P4. To dip into P5, the Psychology Composite indicators have to be below their weakest 20% level of the full range of possibilities. However, after Friday's close, this composite has moved back to its P4 level, just based on a few indicators showing some improvement. You can read more about our Psychology Composite's move to P5 in Friday's post by clicking here.

This morning, I want to share a few thoughts about the recent evolutions of our Monetary Composite. It is as natural as day following night that when the news gets better, the Fed will see less need for monetary liquidity. Their words are just a deception of how they are interpreting their stance, as they DON'T go from hot to cold overnight - it is a steady evolution. Our composite of 37 parameters simply looks at history and lets the market's actual performance tell us what our asset allocation should be. Today, we still have a Monetary Composite rating of M1, its best rating, but it is not the same as the M1 we had a few months ago. Instead, it is gradually evolving toward that threshold that would move it one notch to M2.

I can only imagine how the news will interpret every wiggle in the market in the months ahead. Investors have been coveting any hint of better economic news. So now, that is what we are getting. As a result, Psychology is showing a little more optimism in the pits. You would think this might last a while, but that is not what happens in "Investor Land." You never get to relax during bull markets until those last stages when you are feeling extra confident about the future, and then, Mr. Market is ready to pull the plug. What will keep the herd unsettled in the next few months? Our guess is that the herd will start worrying over the Fed making a statement that they plan to move away from their historic liquidity. We haven't had anything like today's liquidity in recent history, but we have seen this evolving over-sensitivity to an impending Fed Funds rate hike before, so let's look at the market's reaction.

Click on the image above to view a larger chart.

The middle chart above shows how the bond market reacted pre- and post-Fed action, but the real bottom line of the above charts is to show that when the Fed began to remove the over-flowing punch bowl, it has not created any serious market reaction in past circumstances. It does often, however, create a little short term volatility. I believe the improving news of the next 3-4 months will cause the "worriers" to start sending their Fed warnings out to the headlines.

A little returning worry would be good for the long-term staying power of this bull market. However, it needs to be evolving. We need to see the investor start to re-emerge into stocks. It is happening...a little, but not much yet. It will happen, but we believe the BIG MONEY floating around the world looking for a home will continue for a while to be the main stimulus of this bull market.

Don Hays

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Global Markets Update: Tuesday, February 21, 2012

noreply@blogger.com (Hays Advisory, LLC) — Tue, 21 Feb 2012 14:15:00 +0000

Over the last one year, Real Estate and Fixed Income lead the five major asset classes in total returns, while International Stocks are negative, which you can see in the chart below.

Click on the image above to view a larger chart.

A few of the other trends that we have taken note of across global markets include:

Of the G7 Countries, only the US has a positive return over the last year (up 1.7%), with the UK in second down 5.3%.
The BRICs are very big performers in 2012 each up over 16% year-to-date, with India leading the way up 30% so far this year.
Emerging Europe (+19.7%), Latin America (+17.6%) and Asia (+12.2%) currently lead the world regions that we track for the year.
Small and Mid Caps lead Large Caps for the year by a 3%+ margin.
As we had hoped, 2011's US Sector leaders, the defensive Consumer Staples, Utilities and Telecom, are all at the bottom of 2012's US Sector returns, while Technology and Financials lead up over 13%. (See chart below.)

Keith Hays & Justin Wood

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Don Hays on Bloomberg TV

noreply@blogger.com (Hays Advisory, LLC) — Fri, 17 Feb 2012 17:31:00 +0000

If you were unable to see Don Hays' recent interview on Bloomberg's InBusiness with Margaret Brennan, be sure to check it out by clicking on the image above.

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

Please see important disclosures at the bottom of this page.

Investor Psychology has Weakened

noreply@blogger.com (Hays Advisory, LLC) — Fri, 17 Feb 2012 15:58:00 +0000

This week our Psychology Composite moved to P5. There is little doubt the news is getting better, and we're sure that Obama is glad as the election season heats up. According to some studies, the level of consumer sentiment or the Administration's approval rating in March has been fairly good at predicting the incumbent's chance of reelection. But to get off the subject of politics, and back to what really matters...

Let's review this "tug of war" that often has implications for at least the short-term nature of the stock market, between the improving economic conditions and the weakening infrastructure of the Psychology Composite, or to use the market's language, the Wall of Worry. As you recognize, optimum buying junctures occur when the fear is high, and selling points generally occur when emotions get a little too optimistic. Let's show you just two examples of recent trends.

To begin with (a chart that we often share), the stock market has been very overbought, meaning the upside action has reached extremems as measured from the ongoing trends.

Click on the image above to view a larger chart.

In the chart above, you can see that the blue line (McClellan Oscillator) reached that extreme, and it was confirmed by the orange line (21-Day Oscillator). The correction from those extremes has already begun, but in most cases the 21-Day Oscillator has to recede down into oversold territory (under -50) before sufficient "rest" has been restored.

At the same time, many of our technical indicators of fear and greed have moved into the "too much greed" category. The AAII Sentiment Survey is one example.

Click on the image above to view a larger chart.

So today we'll reiterate that from a long-term perspective, the very favorable conditions of Monetary and Valuation continue to tell us to focus on the positive long-term outlook. As we look at the short-term, however, history tells us that the short-term conditions are not nearly as positive at this juncture.

Don Hays

If you are a subscriber to HaysAdvisory.com, click here to read today's Weekly Sector Report. If you would like to learn more about the research and commentary offered by Hays Advisory, click here.

Please see important disclosures at the bottom of this page.

Don Hays on Bloomberg TV Today (2/17) at 10:15 AM EST

noreply@blogger.com (Hays Advisory, LLC) — Fri, 17 Feb 2012 10:00:00 +0000

Don Hays will be on Bloomberg TV's InBusiness with Margaret Brennan this morning at 10:15 AM EST. If your television provider does not carry Bloomberg TV, you can stream the channel online for free at http://www.bloomberg.com/tv/.

Please see important disclosures at the bottom of this page.

Has a Correction Already Started?

noreply@blogger.com (Hays Advisory, LLC) — Wed, 15 Feb 2012 15:05:00 +0000

You don't really see the correction in the major indices yet, but one sector at a time, it is happening, which you can see in the charts from our post on Monday. Furthermore, as you review portfolios of stocks, you can certainly see it. It is almost like a choreographed dance troop.

It all started as our Psychology Composite moved very close to crossing the threshold from P4 to P5 three weeks ago. The going got a little tougher. We saw 87% of the stocks in the S&P 500 and S&P 400 move up above their 50-day moving average. In other words, the recoil rally from that horrendous sentiment in early October of last year got its legs as 2012 kicked off, and it made the easy trip carrying virtually all stocks.

In general, the most rewarding "recoil" occurred in the stocks that had been punished so bad in the 3rd quarter of 2011. But now, it is time for stocks to earn their progress. The ones that are showing huge earnings gains are still climbing in their progression, but we are seeing a definite decay in the momentum of the rally - one step at a time. Some sectors (stocks) ran out of steam as much as four weeks ago, and one by one, we now see most stocks starting to stall. Of course, there are the Apples of the world that are out there in space, but you can see the cracks starting to appear in most other stocks.

There are no certainties during these bull market corrections that still have basic solid underpinnings (strong Monetary and Valuation), but when the market gets extended in some of its overbought characteristics, and Psychology also starts to show a little too much enthusiasm, Mr. Market often calls a short-term halt to repair any cracks in the "Wall of Worry."

Don Hays

Please see important disclosures at the bottom of this page.

What is the Internal Nature of the Stock Market Telling Us?

noreply@blogger.com (Hays Advisory, LLC) — Mon, 13 Feb 2012 16:46:00 +0000

This morning let's look at the internal nature of the market to determine the most probable course for the days ahead. First, take a look at the chart below of the NASDAQ's oscillators.

Click on the image above to view a larger chart.

You can see above, that often when the 21-Day Oscillator (dark orange line) moves up into that rarified stage, the market is ready for a little breather. It has already started in some ways, and by looking at the different sectors, you can see where this breather is coming from.

Click on the image above to view a larger chart.

The percentage of stocks trading above their 50-day moving average was around 87% a few days ago, but as of Friday's close, the measure has fallen to 81%. That is only a small ripple, but you can see in the charts below where that drop is more prevalent.

Click on the images above to view a larger chart.

All sectors are showing slight deterioration, but in the charts above, you can see the more obvious examples.

As we've been saying for the last two weeks, we don't feel pressured to chase new stocks right now. No, we certainly don't want to get too far out on the "too much cash" side either, but this is the type of environment that we can do a "little" pruning of dead wood and make room in the days ahead (at more opportune short-term conditions) to replant the seeds.

Don Hays

If you are a subscriber to HaysAdvisory.com, click here to read today's [type report name here]. If you would like to learn more about the research and commentary offered by Hays Advisory, click here.

Please see important disclosures at the bottom of this page.

Global Markets Update: Monday, February 13, 2012

noreply@blogger.com (Hays Advisory, LLC) — Mon, 13 Feb 2012 14:18:00 +0000

After last week's lackluster action across most markets, here's a few of the trends in global markets that we've taken note of:

Many countries and regions around the globe were down last week; however, the World remains up 8.2% so far this year.
India is the second best performing country that we track, up 25.4% this year, with Egypt leading the way, up 32.4% so far this year.
Small Caps (+9.1%) and Mid Caps (+9.7%) continue to outperform Large Caps (+6.8%) in 2012.
Financials (+11.9%), Technology (+11.8%), and Basic Materials (+10.8%) continue to lead the way for US sectors this year, while Consumer Staples (-0.1%), Telecom (-2.8%), and Utilities (-3.5%) are the biggest laggards.
Gold and Silver have performed well this year, up 9.4% and 19.1%, respectively. Natural Gas, however, is not doing so hot down 15.8% this year and down 38.9% over the last one year.
Despite the turmoil in Europe, the Euro is up 1.8% in 2012.

Keith Hays & Justin Wood

Please see important disclosures at the bottom of this page.

How Overbought is the NASDAQ?

noreply@blogger.com (Hays Advisory, LLC) — Thu, 09 Feb 2012 16:21:00 +0000

There are a zillion ways to measure the historical times when the market's advance or decline has exceeded normal rallies. We use the advance/decline line and the deviations from trend for our overbought readings. In the chart below, you can see that the NASDAQ has moved to a level that is higher than any other time in the last two years.

Click on the image above to view a larger chart.

Sometimes this is a prelude to a correction - sometimes a serious correction, especially in these last two years. If you took a look at this indicator on a longer time frame, you would notice the changing characteristics of the rallies since the devastating bear market collapse in 2008-2009, and that the rallies in these last two years have produced higher levels from this overbought indicator. But even with that said, today's level has reached that "higher" extreme.

Along with the overbought/oversold indicator above, we have several of our Psychology indicators that have reached extremes that often presage a correction, as we have been mentioning over the past few weeks. This is important for the short-term, but remember, Psychology is only one part of the process we follow that also includes Monetary and Valuation, and these two indicators remain at bullish levels.

Historically, when you have 2 against 1 as we do today, you do get some short-term quesiness (sometimes), but in the upcoming 12 months, you almost always have a positive response.

Don Hays

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The Economic Clouds are Clearing

noreply@blogger.com (Hays Advisory, LLC) — Mon, 06 Feb 2012 16:32:00 +0000

We are excited, and very relieved to see this new evolving economic news to substantiate our enthusiasm for our Asset Allocation Model suggesting that we be fully invested in equities. No matter how long you live, or how many times you witness the successful predictions, your faith still falters as you hear all the "doomsdayers" who are given full page attention during those bottoming junctures.

It is not being widely noticed, but for the first time since 2005, residential construction employment increased during four of the final five months of 2011 (up 0.8% in December and 7.1% over the five-month period). I consider this a BIG deal. There are a lot of reasons to give for the long-delayed recovery, but in my opinion, the biggest anchor to the return of growth is the threat of housing - a major part of any resurgence in growth.

Also, Friday's job numbers were great, and indeed, some of the indices made new highs not seen since at least the 2000 and/or 2007 peaks. You can see the recent trend of Initial Weekly Unemployment Claims in the chart below from Calculated Risk.

Click on the image above to view a larger chart. Click here to view the source.

Today's numbers are good and getting better. When you recognize that companies (especially small business) have been so negative in their outlook and have now spent the better part of three years retrenching and doubting any chance of growth, you can see how the pent-up demand is going to produce a catch-up growth phase that will continue to surprise on the upside.

There's a lot of catching up to do as the economic dominoes - one by one - begin to accelerate the expansion.

Don Hays

Please see important disclosures at the bottom of this page.

Global Markets Update: Monday, February 6, 2012

noreply@blogger.com (Hays Advisory, LLC) — Mon, 06 Feb 2012 14:24:00 +0000

With markets around the world up big last week, here's where we stand this morning:

The year has gotten off to a great start with the World up 8.6%, the US up 7.3%, and the World x US up 9.9%.
Latin America (+16.8%) and Emerging Europe (+19.1%) currently lead the world regions.
Germany has rebounded big this year, up 15.7%.
Brazil, Russia and India are all up more than 19% so far this year.
US Small Caps are up 11.7% this year, while Large Caps are only up 6.9%.
Basic Materials (+13.2%), Financials (+13.2%), and Technology (+10.4%) are currently leading US Sectors for the year.
The NASDAQ Composite is up 11.5% so far in 2012.

Keith Hays & Justin Wood

Please see important disclosures at the bottom of this page.

Which Sectors Have Participated the Most in This Rally?

noreply@blogger.com (Hays Advisory, LLC) — Fri, 03 Feb 2012 15:42:00 +0000

As we mentioned last week, the percentage of stocks above their 50-day moving average had risen to 86%, suggesting that the recent rally needed to digest some of its enthusiasm. As we observe this indicator again this week, now standing at 83% (see the updated chart below), we note that while it did move up close that that 90% level that has pretty much capped the upward momentum of the rallies of the last two years, it didn't quite make it.

Click on the image above to view a larger chart.

In the ensuing months, we expect rallies to be able to develop that full potential, and this current rally could do that in the next few weeks. But the bottom line is that "usually" these levels are close to a zone when the market takes a breather. That is our current expectation, but this certainly does not disrupt the continuing long-term bullish expectations as defined by our Asset Allocation Model.

Also, it is interesting to see which sectors have participated the most in both the S&P 500 and S&P 400, along with the combined "S&P 900," in the rally of the past few months. You can see this action in the tables below.

Click on the image above to view larger tables.

Overall, our Asset Allocation Model continues to be positive on the long-term; however, we continue to pay close attention to the action of the short-term.

Don Hays

If you are a subscriber to HaysAdvisory.com, click here to read today's Weekly Sector Report. If you would like to learn more about the research and commentary offered by Hays Advisory, click here.

Please see important disclosures at the bottom of this page.

Time for the Market to Pause and Let the Economy Catch Up

noreply@blogger.com (Hays Advisory, LLC) — Wed, 01 Feb 2012 14:51:00 +0000

We've been in the camp for the last two weeks that it was time to take a breather - at least in the momentum of the rally. Of course, we have to keep this in context, since the January rally has been nothing more than part of a normal relfex rally following the intense pain of the 2011 correction.

Our analysis is indicating that we are at a juncture when, at the very least, the momentum of the recent rally should moderate, and at the most, we could see an overall market pause. Furthermore, we believe the "pause" has already begun. You can see this in a few of the indicators that we follow daily, such as the McClellan Oscillator, which has started to roll over. Just take a look at the chart below.

Click on the image above to view a larger chart.

Yet, as our Asset Allocation Model suggests that we remain bullish on the long-term view, what story fits the short-term "pause" criteria?

I'm just guessing that we might have to mess around for a few months to cool Psychology back to a more normal rating. So with the fairly mundane 4th quarter earnings coming out, the analysts will really start to downplay expectations for the 1st quarter results. Usually the downplay in expectations leads up to a quarter end and creates some reactions in the stock market. That would be sometime in March. Then, when the actual results beat their more somber estimates (early April), they start to upgrade. Flip. Flop. The good investor recognizes this trend, so they flop when the analysts flip, and vice versa.

My economic guess, therefore, is that in the time until a few weeks before the end of this quarter, as those flips stay somber, the market may also digest a few of the recent gains. And as emotions cool just a little, then the infrastructure will be stronger and ready to support the next rally early in the 2nd quarter.

Don Hays

Please see important disclosures at the bottom of this page.

Don Hays on Fox Business News

noreply@blogger.com (Hays Advisory, LLC) — Tue, 31 Jan 2012 22:24:00 +0000

Today, Don Hays was on Fox Business News' "After the Bell" with Liz Claman and David Ashman to discuss the market's strong start to 2012 and his outlook for the year ahead of us.

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Don Hays on Fox Business Network Today (1/31) at 4 PM EST

noreply@blogger.com (Hays Advisory, LLC) — Tue, 31 Jan 2012 16:48:00 +0000

Don Hays will be on Fox Business Network's show "After the Bell" at the top of the 4 PM EST hour today.

If you would like more information on this show, you can visit its homepage here.

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Don Hays Quoted in LA Times

noreply@blogger.com (Hays Advisory, LLC) — Mon, 30 Jan 2012 20:34:00 +0000

Don Hays was recently quoted by Nathaniel Popper of the LA Times:

"Bullish analyst Don Hays wrote this morning that 'the market is now getting a littled winded and a pause to refresh would certainly be called for (and healthy).'"

You can read the complete story here.

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Technicals Say, "We Need to Rest"

noreply@blogger.com (Hays Advisory, LLC) — Mon, 30 Jan 2012 15:32:00 +0000

On the surface, there is no change in our Asset Allocation Model this week, but as we look inside the picture, we see that our Psychology Composite is now closing in on a P5 rating. That would not be disastrous, but it would suggest that the market has gotten a little winded and a "pause to refresh" would certainly be called for (and healthy).

Let's look at the nature of the rally up to this point (in the chart below). The US stock market, especially the larger caps with very good trading liquidity, has almost erased last year's correction that was excused by concerns about the US political gridlock, economic concerns, and worries about Europe.

Click on the image above to view a larger chart.

While our Psychology Composite is hinting that maybe it is time for some pausing and time to worry about something, our Valuation Composite, based on the valuation of the S&P 500, is sending us this message, which you can see in the chart below.

Click on the image above to view a larger chart.

It is immediately obvious that the valuation in March 2009 was so compelling that stocks were being offered at the best bargain of any time in the last 30 years. So, the S&P 500 subsequently almost doubled in price. Stocks are not as cheap today, but should we be crying about the high price? Not even close. We should be jumping up and down that they are still as cheap as at any other bear market low (excluding 2009) in the past 30 years.

Even though this S&P valuation is the most important to us, we also keep track of the ValueLine Appreciation Potential to determine how the average stock is priced. Today, this calculation suggests that the average stock has a potential of 10.5% for the next 12 months. We believe this is one reason that we have seen the large-cap universe outperform in the last few months.

So today, we're in "gray" time. With our Valuation and Monetary Composites at their best ratings, and Psychology at only P4, things are not as "black or white" as they were a few months ago. The market outlook for the short-term is a little murkier, but the long-term is still very attractive.

Don Hays

Please see important disclosures at the bottom of this page.

Global Markets Update: Monday, January 30, 2012

noreply@blogger.com (Hays Advisory, LLC) — Mon, 30 Jan 2012 14:00:00 +0000

As the MSCI All-Country World Index (ACWI) ended last week up 1%, here are a few of the key trends that we've taken note of across global markets:

The MSCI ACWI x US was up 1.8% last week, with the US up only 0.1%.
Emerging Markets had a very strong week last week up 2.2%, which brings them to being up 10.9% so far this year.
Germany, France and Italy have all had a strong start to the year each up over 6% year-to-date.
The BRICs are performing extremely well so far in 2012 each up over 11% so far this year.
Of the countries we follow, Jamaica is leading in the one year returns up 18.3%.
The Dow Industrials had its first negative week of 2012 last week down 0.5%; however, the Dow Total Stock Market was up 0.4% last week and is up 5.2% so far this year.
Basic Materials (11.0%), Financials (8.6%), and Industrials (7.7%) continue to lead the US Sectors for the year.

Keith Hays & Justin Wood

Please see important disclosures at the bottom of this page.

What Message is the Internal Stock Market Giving Us?

noreply@blogger.com (Hays Advisory, LLC) — Fri, 27 Jan 2012 15:38:00 +0000

Many of our overbought indicators are saying that we need to let the recent rally digest some of its enthusiasm again. Our sector studies' tendency to show an advancing market's upward momentum any time the percentage of stocks trading above their 50-day moving avaerage rises to 90% is giving that same advice. You can see below that as of yesterday's market close, we now have 86% meeting that criteria at this time.

Click on the image above to view a larger chart.

One sector, Industrials, has enjoyed the best rebound from the correction of 2011, which you can see in the charts below. The deterioration from that peak momentum in late 2010 reached the extreme weakness in last year's concern, but that disturbing pattern has now been broken.

Click on the image above to view a larger chart.

This action in the Industrials sector is a very promising indication for the look ahead.

Don Hays

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The Dominoes are Starting to Fall

noreply@blogger.com (Hays Advisory, LLC) — Wed, 25 Jan 2012 16:47:00 +0000

We sit here in 2012 and we only remember those conditioned reflexes of the last 4 years when all the negative dominoes were falling. But now we're ready for the other side of the evolution. The dominoes have been reset, and the process has been in the preparatory stage. Now, the action has progressed to the tipping point. Just take a look at some of these charts below from Calculated Risk.

Click on the images above to view larger charts. Click here to view the source.

The dominoes have already started the process. Now at last, the mind boggling slow progress to cushion and cure the massive financial crisis is going to start its positive progression. I have my strong preference for the next President of the United States, but it is almost a certainty that whoever is elected will go down as a hero by the time 2016 rolls around. The cycle is poised to show dramatic improvement regardless. These steps in the evolutionary process do not have to have words, you can see plainly that one step sets off the next one.

Today, in our opinion, there are about equal odds of success for the next 3 months in the stock market, but HUGE odds of success for the next one year (according to our Asset Allocation Model); however, we currently see the market very overbought, which you can see in the chart below.

Click on the image above to view a larger chart.

So, there is "some" short-term risk here, but that risk, in our opinion, is not worth losing out on the outstanding long-term potential. So yes, we are being a little more critical in our short-term strategy; however, we're also remaining true to the message that we're receiving from our Asset Allocation Model.

Don Hays

Please see important disclosures at the bottom of this page.

Conditioned Reflexes and an Overbought Stock Market

noreply@blogger.com (Hays Advisory, LLC) — Mon, 23 Jan 2012 15:47:00 +0000

Okay, Mr. Market, we know your plans. You have spent the last two years, and really the last 14 years, "training" us. And like the trained monkeys that we are, you have convinced our brains to look at the last two years, and when you whistle, we come drooling ready to be fed. Not peanuts, but either rags or riches based on your training. So, this is what we've been experiencing for the last two years.

Click on the image above to view a larger chart.

The market rallies, we get excited, and you open the trap door, right? Oh yes, we know your plot. We're not falling for that again. As you can see in the chart below, we see the stock market overbought - just like it was in 2010, and just like it was last year. So no, we might have been buying at those points, but you are NOT going to trap us again.

Click on the image above to view a larger chart.

Yeah, right!! Mr. Market is a master animal trainer, but this trainer is not trying to show us off to the cheering crowd as we do our flips and flops on cue. This animal trainer has one thing in mind - making us look like fools again and again and again. So as we get conditioned, he is going to reverse the course of action. He knows we are massive victims of our emotions.

That is the gist of why investors get taken to the cleaners time after time after time. So today, the monkeys are sitting in cash and know for certain that the economy is not going to rally and that the stock market is never going to experience a bull market again. Our Asset Allocation Model has not changed too much since last Tuesday, as Psychology remains at P4, despite it weakening slightly over the past week.

So today, in the daily management of portfolios, we think it is justified to be a little more prudent on your purchases, and if you have stocks that have not lived up to their potential, it is a good time (if they have rallied up to technical resistance levels) to do a little pruning. However, the 12-month potential for this bull market is still excellent, and Mr. Market is still a lot smarter, and is devious and mean and wants to lead you (and us) astray. Don't ever forget that!!

Don Hays

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