U.S. Markets Remain Bullish

The following post is written by Donald Dony.

Though most of the world’s stock indexes have been trading flat over the last 12 months, the S&P 500 has continued to advance with little more than a minor pullback. The rationale for this bullish tone maybe questioned, but there is no denying the fact that the U.S. index is still in a strong bullish trend. Technically, the S&P 500 has been at an overly bullish level since January 2013.

courtesy of www.technicalspeculator.com

courtesy of www.technicalspeculator.com

During the last eight months, there has been between 80 percent and 93 percent of the stocks within the U.S. index trading above their long term 200 day moving averages.

Historically, major corrections only develop when the percentage of stocks above their 200 day m/a is less than 50% and that the percentage remains below this level (50%) for at least 3-4 months.

The readings during late 2007 and early 2008 are a good example of the percentage levels that are required for a major correction.

Currently, over eight-out-of-10 stocks on the S&P 500 are trading over their 200 day m/a. This overly bullish reading suggests that the rise in the S&P 500 is not over.

Bottom Line: The high percentage of stocks that are trading over their long term 200 day moving average implies that the bull run for the S&P 500 will continue and that higher levels should be expected.

The present level also suggests that any major corrections will likely not occur in Q4. As history has shown that it takes at least 3-4 months of a less than 50 percent reading before a substantial decline can begin.

Additional market analysis is in the August newsletter. For more information on Donald’s newsletter visit www.technicalspeculator.com.

Readers what’s your take? Do you feel stock markets are overvalued? Are you bearish, bullish, or do you just buy-and-hold?

4 Responses to “U.S. Markets Remain Bullish”

  1. Rob aka Mr Beating the TSX

    Aug 30. 2013

    Somewhere in between leaning towards bullish, but since my rebalancing says my stock portion is over valued and fixed income is under I’m using the opportunity to add to my fixed income side. I just bought Aberdeen Asia Pacific (FAP) and several REITs. The really nice part is everything is yielding over 8%. Not bad for fixed income.

    Rob

    Reply to this comment
  2. The Dividend Ninja

    Sep 02. 2013

    Hey Rob,

    Your terminology is incorrect – REITs are definitely NOT a fixed income investment (if that’s what you meant). REITs are really stocks, they used to be income trusts actually. They pay a higher distribution (dividend) becuase they do not pay corporate tax, pay the higher yield, and therefore pass the taxation onto you. They simply have a different tax structure. 😉

    REITs are also sensitive to interest rate movments, as you allude to like bonds. So your higher yield would easily be offset by a loss if rates rise. That’s becuase these companies have debt to maintain operations. Higher rates would impact their bottom line.

    If you are ONLY chasing yield, and viewing REITs as fixed income, you could find yourself in trouble down the road – especially if interest rates rise.

    Here is a post that might shed light:

    http://www.dividendninja.com/the-risks-of-high-yielding-investments

    Cheers

    Reply to this comment
  3. Rob aka Mr Beating the TSX

    Sep 08. 2013

    I agree but I was lumping REITs in together with my fixed income side as a general statement, as they are sensitive to interest rates, hence stocks such as FAP and RIO.CAN have all slid in price in while my stocks have soared in price. .

    Funny the reason why I even looked at REITs at all was due to all the panic comments on Greater Fool about a massive sell off. Once I dug in further I realised that this was a buying opportunity.

    Reply to this comment
    • The Dividend Ninja

      Sep 08. 2013

      Hey Rob,

      Just make sure you keep your equity and fixed-income seperate. You’ll land yourself in trouble if you start to mix the two, and take on too much equity. After all, marekts have been soaring. Fixed income is there to protect you if there are downturns and market turmoil.

      Though real estate tends to be in its own class, I still think of REITs as equity. Like yourself, I feel there is opportunity here – just not the cash flow to invest. I’m interested in RioCan, H&R REIT, or the ETF route: XRE or ZRE.

      Cheers

      Reply to this comment

Leave a Reply

*