The official blog of Hays Advisory

Don Hays on Yahoo! Finance

noreply@blogger.com (Hays Advisory, LLC) — Fri, 17 May 2013 12:46:00 +0000

Today, Don Hays discusses the recent movements in the price of gold with Matt Nesto of Yahoo! Finance's Breakout blog. You can watch the full discussion by clicking on the image below.

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.

Please see important disclosures at the bottom of this page.

Don Hays on Yahoo! Finance

noreply@blogger.com (Hays Advisory, LLC) — Thu, 16 May 2013 12:34:00 +0000

Today Don Hays joins Matt Nesto of Yahoo! Finance's Breakout blog to discuss that despite new highs in the market, individual investors are still skeptical. Click on the image below to watch the full segment.

Please see important disclosures at the bottom of this page.

Stock Market in Very Overbought Territory According to 21-Day Oscillator

noreply@blogger.com (Hays Advisory, LLC) — Wed, 15 May 2013 16:39:00 +0000

The higher high in the S&P 500 has been much later than most indices, but you can't dismiss the message that is being sent. Since 2008 the Federal Reserve has been trying to light the fuse, to get the fire started, but the intense skepticism - fear - and the damage resolution from the housing crisis have served to dampen the flames. The stock market is now telling us that the flames are starting to catch on.

However, we now have a very overbought stock market. As of yesterday's close, the 21-Day Oscillator (orange line) moved up just above 100, which you can see in the chart below.

The first temptation is to say, "Oh, the market's too hot, so I will wait on weakness." Yet, looking at the historical forward returns for the stock market when the 21-Day Oscillator moved above 100 (going back to 1978) suggests that while your odds of success might be lower in the near term, they get much better as you look out a year. (If your are a subscriber to HaysAdvisory.com, log in by clicking here to get the full study in today's report titled "The Fuse is Lit!".)

This is just one example of why we think the last four years of this bull market have only produced a bull market that is still in its infancy. The Fed has not even started to normalize monetary liquidity yet, and with today's news showing prices are still very tepid and economic growth is sub-par, the Fed may still continue to prime this pump a lot longer than expected.

Don Hays

Please see important disclosures at the bottom of this page.

Margin Debt Update

noreply@blogger.com (Hays Advisory, LLC) — Mon, 13 May 2013 15:16:00 +0000

Okay...so we still have our Psychology Composite rating of P4. That is not terrible, but if you remember, the P5 of February suggested the market was not headed in a good direction in the short-term. However, now we have a new high in the stock market almost every day. The very positive Monetary Composite and the extremely positive Valuation Composite keeps us strongly in the bullish camp for the long-term, but we still have that P5 of February in our peripheral vision.

About a year ago, we were screaming about how bullish the annual increase in margin debt was, since it had previously dropped into a net liquidation of margin debt that had historically generated massive bull markets in its wake. However, that has changed. We now see that margin debt has increased from that very somber time of a year ago by 28%. We don't consider this ultra-ominous, but you can see that in "some" cases (like 2004 when the Fed was about to start raising interest rates) it did presage a correction.

...so we're still watching those new highs, but when you think about it, the signs are saying it is not a good time to be chasing new stocks. Our discipline says to wait on a better juncture, so that's what we're doing.

Don Hays

Please see important disclosures at the bottom of this page.

Global Markets Update: Monday, May 13, 2013

noreply@blogger.com (Hays Advisory, LLC) — Mon, 13 May 2013 12:59:00 +0000

The US was up 1.2% last week, while the World x US was up only 0.6%. US stocks are now up over twice as much as international stocks this year.

Some of the other highlights from around the world include:

Japan continues to lead the G7 countries, up almost 20% this year.
Looking towards Emerging Markets, India continues to lead the BRICs, as the only country in positive territory for the year, up 2.6%.
Small Caps were up nicely last week here in the US, moving them more to the middle of the pack for the year.
Healthcare continues to lead the US sectors, up over 20% this year; however, Utilities fell in the rankings last week, as they were down 2.7%.

Keith Hays & Justin Wood

Please see important disclosures at the bottom of this page.

Is the Public Investor Getting too Bullish?

noreply@blogger.com (Hays Advisory, LLC) — Wed, 08 May 2013 15:05:00 +0000

Our Psychology Composite moved back to P4 this week, and the Monetary Composite barely shifted once again over the threshold that separates M1 from M2 at the end of last week. Here's where it stands this morning.

I've seen a couple of reports lately telling me the public investor is turning bullish; however, the charts below paint a different picture.

When I look at the ISEE Sentiment Index below, I see NO bullishness - only fear. This is a pure-and-simple small speculator (public speculator) sentiment gauge.

There is no doubt in my mind, this tells the story of how investors were buying into the global scene and the commodity story in 2003 and 2004. They had recovered somewhat from the Technology Bubble bursting of 1999-2003. The speculators were buying energy, commodities and international stocks, but in 2006 and 2007, as the big bank collapse came along, and by July 2006 as stocks were hammered and the Fed had tightened the monetary noose past the choke point, the public peculator gave it up. The public gave it up. The financial crash of 2008 and the massive budget crisis was simply too much. Don't forget, either, the baby boomers were reaching the age of 65 and thinking security.

Admittedly, in January's strong move, the public did move into equity funds, but the last two months have certainly squashed that. You can compare the stock purchases of equity funds to that of bond funds in the charts below from Scott Grannis' blog (scottgrannis.blogspot.com).

There is an old spiritual song called "A Great Day is Coming." I don't want to be too mundane about it or denigrate the theme of that song, but that is exactly what I feel for the US and for the stock market. The stock market is telling a very exciting story. So far, the public investor is not listening...but you can bet on it, they will.

Don Hays

Please see important disclosures at the bottom of this page.

Where Does Valuation Stand as the S&P 500 Reaches New Highs?

noreply@blogger.com (Hays Advisory, LLC) — Mon, 06 May 2013 15:33:00 +0000

So, we now have another new all-time high on the S&P 500.

This has brought the index up to the point where it is now selling at 14 times forward earnings for the first time in a while.

As we say, the price-to-earnings (P/E) ratio has a long-time historical relationship with inflation. That has been the basis of the Rule of 18-22, saying that inflation plus the P/E ratio should bee in the 18-22 range when fairly valued. However, markets are NEVER "fairly valued" when fear is high. When fear starts to subside though, P/E ratios move up (and vice versa). So when our Fear Index (the price of gold) dropped under that major resistance point a few weeks ago, just like summer follows winter, the P/E ratio has moved up.

There is another similar discipline that we chart for subscribers to our site. It is called the Rule of 20, and it says that the normal (neutral fear) P/E ratio can be determined by subtracting the inflation rate from 20. You can see that plot below.

We have been expecting the forward P/E (blue line) to converge with the Rule of 20 P/E (red line), as a harbinger of better emotional feelings. That is now starting, and it also confirms the message given when the price of gold dropped under support a few weeks ago.

Don Hays

Please see important disclosures at the bottom of this page.

Global Markets Update: Monday, May 6, 2013

noreply@blogger.com (Hays Advisory, LLC) — Mon, 06 May 2013 13:09:00 +0000

Year-to-date, the US has outperformed the World x US by over 7%.

A few highlights from markets around the globe include:

Within the international space, Emerging Markets are down just over 1% in 2013.
Japan is up just over 17% for the year, leading the G7 countries, while Canada is lagging the group, down 1.7%.
India was up almost 3% last week, bringing it back into positive territory for the year.
Gold is down 11.7% this year, and the precious metal is down 10.1% over the last one year.
Silver is also in negative territory this year, down 19%, and it's down 20.1% over the last 12 months.

Keith Hays & Justin Wood

Please see important disclosures at the bottom of this page.

Checking up on a Few Psychology Indicators

noreply@blogger.com (Hays Advisory, LLC) — Wed, 01 May 2013 16:27:00 +0000

Yesterday, the S&P 500 reached that resistance line formed by the two previous major tops in 2000 and 2007, so today, I want to see how a few of our indicators have been shaping up.

First, let's look at the latest ISEE Sentiment Index and AAII Bears/Bulls Ratio.

These indicators have been an excellent gauge in the past that the future is not as dim as public sentiment projects. What could possibly generate a positive outlook from all the morose that is overhanging you and me?

So, we know that investors today are risk averse. We do see some promising signs, but the balance still falls on those seeking safety. We always like to watch our ratio of NASDAQ (more growth oriented) volume to that of the NYSE (more conservative).

Looking back over these last 10 years, you can see how the market reacted when this ratio revealed a very low ratio of NASDAQ (growth) to NYSE (conservative) volume as it has just done. Quite often, strangely enough, it has occurred sometimes in the last stages of a mini-rally followed by a decline in the next few weeks. But even more significant, those "final" declines in the next few weeks turned out to be major buying junctures.

We're still a little cautious on the short-term, but we're watching for the improvements in our Asset Allocation Model necessary to increase the bullishness of our short-term outlook to match that of our long-term outlook on the stock market.

Don Hays

Please see important disclosures at the bottom of this page.

Stock Market Valuation Measure Reaches New Level

noreply@blogger.com (Hays Advisory, LLC) — Mon, 29 Apr 2013 14:45:00 +0000

Despite all this "correction" talk, you can't argue with the very normal trend that corporate earnings are adapting to. As you can see below, they are scaling into the very long-term up-trend that earnings have produced in the last 40 years - not too hot, and not too cold.

At the same time, we have this very stable uptrend-line growth of earnings, we are seeing that investors have finally started to be willing to pay a little more for this stable growth rate. The P/E has finally moved out of that trend peaking at "13" that has limited the rallies over the past few years, and is now selling at 14 times expected earnings.

With inflation remaining subdued, history tells us that the P/E ratio has the potential - if today's negativism ever reduces - to move up substantially from here.

Don Hays

Please see important disclosures at the bottom of this page.

Investor Psychology Improves to P3

noreply@blogger.com (Hays Advisory, LLC) — Wed, 24 Apr 2013 15:02:00 +0000

In the last few days, as we've seen some obvious signs of economic weakness and market weakness, we've had several of our Psychology Composite indicators move to a more positive stance. This was sufficient as of yesterday's close to move our Psychology Composite to P3. That is encouraging since this composite has shown some very healthy improvement in the last two months following the P5 it registered in early February.

However, the Value Line Appreciation Potential is still registering in the lowest 20% of its historical range. IF...our Psychology Composite improved to P2 or better, then that might tip the scales, but at this time, we simply do not have the necessary improvement.

So...the good news is that Psychology has improved to P3. That bad news is that it has not improved to P2. As a result, we still think, in our opinion, that this correction has a little more work to do to get us in a more bullish mood for the short-term.

Don Hays

Please see important disclosures at the bottom of this page.

AAII Bears/Bulls Ratio Moves Past Significant Level

noreply@blogger.com (Hays Advisory, LLC) — Mon, 22 Apr 2013 15:20:00 +0000

This morning, our barometers are giving us this message.

Back in early February, we wrote of how the combination of our Psychology Composite moving to P5 along with the Value Line Appreciation Potential dropping to its lowest ranking suggested we take a cautious outlook on the market for the next 3 months or so. Since then, Psychology has dropped back to P4, but the good news is that if this P5 condition we witnessed is a prelude to a correction, and the natural progression of emotions (especially by the "dumb" investors) is to return to a more healthy nervous state, and the Psychology Composite rating moves to P2 or even P1, you have just seen a normal correction in a bull market. That is VERY bullish.

So far, we've had a little improvement. I've shown you some of those indicators, like the AAII Bears/Bulls ratio (shown below). It has really increased (decreased in the inverted chart below) sharply in the last three weeks and now is at a very bullish state.

That is very good, and in fact, we believe it is a signal that the next few weeks will see other Psychology indicators fall back into a more bullish condition, but it is only one part of our Psychology Composite - which is still stuck in a P4 stage. Don't get me wrong, P4 is legions better than a move into the P6 category, and it's also a beginning sign that this bull market is still alive and will re-emerge in a rejuvenated condition, but we still have some missing pieces.

Don Hays

Please see important disclosures at the bottom of this page.

Global Markets Update: Monday, April 22, 2013

noreply@blogger.com (Hays Advisory, LLC) — Mon, 22 Apr 2013 13:19:00 +0000

World equities were down a little more than 2% last week; however, they remain up almost 5% for the year, and the US remains up just over 9%.

The BRICs are all still negative for the year. Yet, while Russia took a hit last week, down 4.8%, India saw a nice rally, up 4.7%, bringing it out of deeper negative territory.

Healthcare, Consumer Staples & Utilities remain the leaders of the US sectors, all up over 15% for the year. Mid Cap Value also continues to lead the US style boxes, with Large Cap Value fairly close behind in second.

Keith Hays & Justin Wood

Please see important disclosures at the bottom of this page.

A Check-Up With Dr. Copper

noreply@blogger.com (Hays Advisory, LLC) — Wed, 17 Apr 2013 12:51:00 +0000

With the big bust in commodity prices that has been in the headlines the last few days, it is important to see what the stock market is telling us. For instance, take a look at the dichotomy of the S&P 500 and the message from Dr. Copper.

As you take a look at the chart above of the price of copper - a traditionally good economic proxy, you can see that the price of copper - compared with the S&P 500 - lost its advantage starting at that juncture in May 2011. But even so, every time the S&P 500 moved up, so did the price of copper...until this year. To be more precise, the obvious dichotomy started as our indicators told us in February of this year that we should begin to be a little more cautious about the short-term prospects of the stock market. The big disconnect has been pronounced since then and is continuing to widen.

Don Hays

Please see important disclosures at the bottom of this page.

AAII Bears vs Bulls

noreply@blogger.com (Hays Advisory, LLC) — Mon, 15 Apr 2013 15:52:00 +0000

Let's take a quick look at the latest AAII Bears/Bulls survey numbers this morning.

For the purpose of today's look, let's concentrate on the last 4 years. You can see that in all of the recent times that ratio of bears to bulls has moved up into the "red zone," the market has continued to move up for a few more months. When this ratio peaks out, however, the market corrects and does not stop until this ratio drops (on the inverted scale) under that 150 line. You can also see that for every market top since 2010, the ratio of bears to bulls has actually increased (decreased on this inverted scale). In other words, despair has evolved to even higher levels. So here we are today, we moved up into that "red zone" earlier this year, the rally continued for two additional months, but now the trend is down.

Based on this brief look, the next good signal would occur in the weeks ahead as we see this indicator move under that 150 line (ratio of bears to bulls move up to above 150% on a 3-week basis).

You can learn more about this indicator by clicking here to watch a quick video.

Don Hays

Please see important disclosures at the bottom of this page.

Global Markets Update: Monday, April 15, 2013

noreply@blogger.com (Hays Advisory, LLC) — Mon, 15 Apr 2013 12:55:00 +0000

US stocks and real estate are dominating again this year, while commodities have really taken a hit. US equities are now up 11.4% this year, while the World x US is up only 3.7% and Emerging Markets are down 3.4%. Frontier Markets, however, are up 7.6% for the year, and Africa is the only region (of those we track) ahead of the US for the year, up 15.6%.

Here in the US, Mid Cap Value leads all US styles, up 13.6%, which you can see in the graphic below.

Also, Healthcare is leading the US sectors so far this year, up a whopping 19.9%, while Basic Materials are at the bottom of the list, up 2.7%.

Keith Hays & Justin Wood

Please see important disclosures at the bottom of this page.

ISEE Sentiment Index

noreply@blogger.com (Hays Advisory, LLC) — Wed, 10 Apr 2013 14:13:00 +0000

Today, I want to highlight the recent action of one of our Psychology Composite indicators. I am really, really surprised at this action of the small public speculator that buys puts and calls on the ISEE.

The amazing thing - which we intuitively know - is that these public speculators have not really been bullish since early in 2006. That is exactly our perception of what financial consultants are facing today as they deal with their public investing clients. We don't think this indicator has changed. We think it is accurately measuring the sentiment of these historically dumb (and always in the wrong place at extremes) speculators. The public speculator (and public investor) is so cautious in today's world, even new highs in the market indices are drawing their skepticism. You can see that in the latest week this index has dropped down into the very bullish category - similar to the market bottoms of 2010, 2011, and 2012.

You can learn more about this indicator by watching a short video here.

This is a big "fly in the ointment" right now, but we do note these speculators are often early, so for now, we still find that a short-term correction is more likely than a continuation of this "all-time" record high upward advance.

Don Hays

Please see important disclosures at the bottom of this page.

The Camouflaged Correction

noreply@blogger.com (Hays Advisory, LLC) — Mon, 08 Apr 2013 15:18:00 +0000

The chart above shows that the most popular index that measures the market-cap weighted performance of the largest 500 stocks in the US stock market has shown a continuing rising pattern. That is good, and you can't discount that most people's portfolios of US stocks have probably experienced gains in the last two months. However, many other indices such as the Russell 2000 Growth, NASDAQ Composite, S&P 400 and S&P 600 are about even over the past two months.

If you look at the action of the 900 stocks in the S&P 500 and S&P 400, you see a definite number of stocks that are no longer trading above their 50-day moving average (orange line).

So why is the S&P 500 still faring so well? If we dissect the market into the different sectors, we find the defensive grouping of stocks (Utilities, Consumer Staples and Healthcare) carrying the load. Some of our indicators have been suggesting that the smart investors are growing more bearish, while the dumb investors (usually the public investors) are getting more bullish. If we put our twist on this, we could say that even though the public investor is now pushing stocks up, they are not pushing the growth-oriented stocks, but instead, are buying defensive issues.

Don Hays

Please see important disclosures at the bottom of this page.

Global Markets Update: Monday, April 8, 2013

noreply@blogger.com (Hays Advisory, LLC) — Mon, 08 Apr 2013 12:47:00 +0000

As the second quarter began last week, Real Estate jumped ahead of US Stocks, while Commodities took a tumble and International Stocks continued to loose steam.

Emerging Markets were down 2.6% last week, and the World x US was down 1.5%. The US was also down 1%, but it remains up almost 9% for the year, leaving Africa as the only better performing world region we track.

In the US, the defensive Healthcare, Consumer Staples & Utilities sectors are leading. At the same time, Mid Cap Value and Large Cap Value are leading the US style boxes for the year, up 11.4% and 10.4%, respectively, while growth styles are trailing.

Keith Hays & Justin Wood

Please see important disclosures at the bottom of this page.

US Sector Update: Friday, April 5, 2013

noreply@blogger.com (Hays Advisory, LLC) — Fri, 05 Apr 2013 14:09:00 +0000

The chart below is extremely revealing this week, as we see that plunge in relative strength of Industrials very clearly. On the strong side, we have to give our highest accolades to Healthcare, since it's strength has been so consistent for the last six months and is also showing nice gains in the last few weeks. On the other hand, Technology continues to languish, especially the large-cap portion of the sector.

The charts below also show how this has become a large-cap market, as we see wide discrepancies in the Consumer Discretion and Healthcare sectors in favor of large-caps (market weight sectors are outperforming their equal weight counterparts).

Don Hays, Justin Wood & Daniel Petzold

Please see important disclosures at the bottom of this page.

Still Waiting on a Correction?

noreply@blogger.com (Hays Advisory, LLC) — Wed, 03 Apr 2013 14:25:00 +0000

In relation to our title, so are we. But in some ways we also like that old maxim that says if it looks like a duck, walks like a duck, and quacks like a duck, we believe it is a duck.

We are getting close to that period (May to October) where the stock market takes at least a breather. Our short-term "caution" signal came early in February, and our thoughts at that time were that we would know in 3 months or so how accurate this "yellow" light would be. So we have two months down, and one to go on that initial statement.

Now, let's look a little deeper into the action of the stock market. Yesterday's market was really screwy, in our opinion. They said it was up, but it didn't feel like it was up in our view. Let's look at how some of the barometers were acting, especially on the typically more growth oriented NASDAQ.

Right after we got the "yellow" light, the stock market corrected, but then March came in like a mighty breeze and jettisoned the indices to new highs. If you look at the McClellan Oscillator (in the first chart) above, you can see that it has now been pushed back to the threshold of the -50 oversold zone. At the same time, however, the Advance/Decline Line moved up sharply until about a month ago, and has now been in a holding pattern for the last few weeks.

It looks like this duck may be walking and quacking.

Don Hays

Please see important disclosures at the bottom of this page.

Hays' Asset Allocation Model Update

noreply@blogger.com (Hays Advisory, LLC) — Mon, 01 Apr 2013 15:37:00 +0000

News is always late - sending a message of yesterday's trends, and it actually often does more harm than good. With this new focus by investors (and the media) on these new highs (seen in the chart above), our Psychology Composite and the Value Line Appreciation Potential tell us that it makes sense to get a little less positive for the short-term. You can see our Asset Allocation Model's current readings below.

This decision may be right...or wrong, but it makes sense. The odds of a short-term correction are still relatively high. As the S&P 500 moves up to that shoulder line (or maybe a slight upside break-out) that could set the stage for any short-term consolidation.

However, with the configuration above, odds are still positive for the long-term (12 month) outlook for stocks. And with US corporations flush with cash, the mergers and acquisitions of the last 14 years dramatically reducing the supply of stocks to buy, very few new IPOs, the economic uncertainty of Europe, bond yields at artificially very low levels...the only game in town seems to be US stocks.

Don Hays

Please see important disclosures at the bottom of this page.

Global Markets Update: Monday, April 1, 2013

noreply@blogger.com (Hays Advisory, LLC) — Mon, 01 Apr 2013 13:42:00 +0000

The US stole the show in the first quarter of 2013, as you can see in the chart below.

Real Estate (+9.1%) and US Equities (+10.7%) both made solid runs in the first quarter. Commodities and Fixed Income lagged, while International Equities were up slightly.

The Global Equity markets finished the first quarter up 6%, with the US up over 10% and the World x US up 2.5%. Emerging Markets were actually down almost 2%, with the BRICs all negative in Q1.

Mid Cap Value (+14.3%) was the top performing US style box in the first quarter, Healthcare (+15.2%) was the best US sector and the Dow Transports (+17.9%) the top US index we track.

Keith Hays & Justin Wood

Please see important disclosures at the bottom of this page.

Investor Sentiment Update

noreply@blogger.com (Hays Advisory, LLC) — Wed, 27 Mar 2013 13:51:00 +0000

The sentiment of the US investor has been dampened somewhat, as we are seeing the AAII Bears/Bulls ratio rise somewhat, which you can see in the chart below.

The tapering off of bullish sentiment is not nearly what we expect or need to repair the cracks in this bull market's "wall of worry." As you can see in the chart above, the indicator is on the verge of the "first" green zone, dropping already from that prior red zone level, but we would expect something at least above (inverted chart) the 150 mark.

You can learn more about this indicator by watching a short video here.

Don Hays

Please see important disclosures at the bottom of this page.

Internal Stock Market Check-Up

noreply@blogger.com (Hays Advisory, LLC) — Mon, 25 Mar 2013 15:33:00 +0000

Today, let's quickly examine what's happening with the internal action of the stock market.

While the S&P 500 has moved up since early February, the net new highs have reduced, the percent of stocks trading above their 50-day moving average has dropped, and the McClellan and 21-Day Oscillators are showing less participation in the rally. You can see these trends in the charts below.

Also, if you read our sector posts on Friday's, you've probably seen that even though the Industrials are "hanging in there," so many of the other economically sensitive sectors have weakened. However, the normally defensive sectors like Utilities, Consumer Staples and Healthcare, continue to show some strength in the last few weeks.

We'll continue to keep you updated on these trends as the market evolves.

Don Hays

Please see important disclosures at the bottom of this page.