What is the Wilshire 5000 Telling Us?

We look at all the indices, but as you analyze the public sentiment, it has to be based on how their assets are doing.  So today, let's pull out the Wilshire 5000, which is the best index to get a picture of all the domestic stocks.

On Wednesday we cited the exact correlation in the timeline in this year's correction to the one last year.  The weakness generated this year at the low point was more severe than last year's trough, but the ensuing rally this year has been stronger as well.  So today, we stand right at the point where an upside breakout is about to occur, and we see almost identical damage from the pre-correction point.  So today's market is still singing the same tune.

Click on the image above to view a larger chart.

The chart above is very interesting, and  especially as we also see the close correlation from our Psychology Composite during both corrections.  You don't typically get a P1 reading from our Psychology Composite except at the low points of bear markets.  However, the two corrections (2010's and 2011's) were more severe than a typical correction, but nonetheless they have been corrections in a continuing bull market.  As you interpret this P1 message, you find that usually means it clears the air, totally resurrecting a super powerful "Wall of Worry" that bull markets need for a renewed powerful upsurge.

We got a P1 reading in March 2009 at the very trough of the bear market low.  That lifted off the bull market.  That first move from that 2009 P1 signal moved the S&P 500 up from 666 to 1217, then corrected and we got the next P1 signal.  That ensuing second lift-off moved the S&P 500 from 1010 to the high this year.  Psychology deteriorated to a P6 reading around that time, and then came the 2011 correction.  From this most recent P1 reading, we've already moved from 1074 to 1255 on the S&P 500, but as you observe the chart below of the Wilshire 5000, you will see that any breakout here should produce at least similar action to that of last year's breakout.

Click on the image above to view a larger chart.

The bottom line for the 2010 and 2011 stock market is that it has been very tough time to be a long-term investor.  However, as we look toward the new year, with our Asset Allocation Model sending us the signal it is sending today, we look forward to the coming year.

That's it for this year, and we look forward to seeing you again as we kick off 2012.

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.