Market Brief: Monday, September 13, 2010

September 13th, 2010 - mark that on your calendar.  We’ve had a signal from the sudden decline of the bullishness as measured by the A.A.I.I. Sentiment Survey.  This occurrence about 10 days ago gives a 98% chance that the next 3 months will produce positive gains in the stock market. 

September 13th, 2010: It is only 6 weeks until we reach November 1st, which starts that old seasonally strong November to April season for stocks, AND if you look at this period every four years, only in the mid-year of the Presidential Election period, you find that it has NEVER had a losing period since 1948. 

September 13th, 2010: You can look at the spread between the 90-day T-Bill rate and that of the 10-year Treasury Note (the yield curve) and see a very promising rolling over from those intense panic levels of the last few years.  It was exactly today’s “rolling over” that ended the correction of 2004, and put upward momentum in the economy and stock market. 

Nothing is perfect, but history will show that when the above Valuation Composite is under the green line, that just the average S&P 500 gains over the next four years produces a gain of 16% a year.  Now, that is not guaranteed, but are real estate (?), gold (?), T-Bills over four years (?), and T-Bonds (?) better alternatives.  

Commodity prices, especially that of the crucial commodity of copper, have historically given so much credence to the price of copper as an economic indicator, it is popularly called Dr. Copper.   In June, it formed a bottom and started to rally and is wanting to make a new high.  Copper is not by itself, as other commodities are showing similar patterns.  The most interesting commodity is the one that gives some insight into the home building industry.  Lumber prices really took it on the chin as it started a very definite bear market in 2004.  The price of lumber has now made a higher high and higher low.  Lumber’s daily action is a very promising sign. 

So, the bottom line…September 13th, 2010 - remain bullish on stocks!

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Don Hays