The stock market may be better than it looks…

Today the S&P 500 closed at 1216, within a whisker of where it closed yesterday.  

Here’s an interesting (sobering?) chart.  It shows the S&P 500 since 1980.   From 1980 until 1995 the curve shows a very even climb.  It goes parabolic starting in 1995 and ended in 2000 when the dot-come bubble popped.  The curve from 1980 until 1995 shows a reasonable and sustainable rate of growth.  If that rate had been sustained, does the arrow point to a level of reasonable valuation today (about 825 on the S&P 500)?  I don’t know, but that is one reason why many think the stock market is way overvalued today.  I think it is very possible we will trade back to the 825 area at some point over the next 10-years; we just don’t know when, or if it will.

Today, Friday was an interesting day.  The S&P 500 closed unchanged, but the advancing stocks outpaced decliners with 57% of all stocks advancing.  It just wasn’t 57% of the S&P 500.  That’s a good sign, because the market is improving; we just haven’t seen the evidence in the broader indices.

In the past month the S&P 500 has closed at, or between, 1216 and 1229 four times at its lows.  The first was on 1 November.  Since then the other three times have all been on lower volume (and declining each time) with improving breadth (%-advancing).  This too is a good sign and it also indicates the market is improving behind-the-scenes.

Thursday we were worried about the VIX rising, but Friday VIX (S&P) fell 7%.  Again, the market is improving. 

All this leads me to conclude I was right to stay in the market with cautious optimism. If I am right, we should see the market move up soon.

The NTSM analysis remains HOLD today.

I bought back into the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct NTSM buy signal.  I remain 100% long in the long term portfolio (100% stocks in the 401k.). (See the page “How to Use the NTSM System” – the link is on the right side of this page). 

I am 90% long in the trading portfolio.  I am probably over-committed (maybe I should be committed) considering all the bad news out there.

Just a reminder: 100% invested in stocks is way too much for most rational folks.   Don’t do it unless you have a high tolerance for risk.