We have a new BUY signal for the NYSE Composite Index effective 9/2/03.
Were making a slight change in our timing system
Effective with this signal we will be making a slight change in the timing and method of defining our signals.
Previously, we issued signals whenever they occurred, even if they occurred intra-day. We recorded the date of our signal as of the day the signal occurred.
From now on, we will use a weekly timing signal based on the week's data ending on Friday. We will ignore all signals occurring during the week, and only report signals that occur based on the sum of the weekly data. This approach will smooth out the daily volatility of the NYSE Composite Index and eliminate false signals caused by a large daily swing in the market that reverses the following day.
In addition, we will advise our subscribers of the signal sometime during the weekend following the signal with the signal dated on the following Monday. The rational for using the Monday date is the Monday market open will be the first opportunity to react to the signal with a market order.
If the market is closed on the following Monday, we will use the next date the market is open.
A word about seasonality
If you havent purchased or read the Stock Traders Almanac, youve missed a must-read for stock traders. Its published annually and you can order it from Amazon. It contains lots of information, not the least of which is information on the central theme of the book, the seasonality effect on stocks.
Turns out that the three worst performing months for the S&P 500 and the Dow Jones Industrials for the past 52 years have been August, February, and September with September being the worst.
What else is going on?
Trading volume has been very light during August and is likely to continue during September. That doesnt bode well for stocks. However, even with the light volume during August, the NYSE managed to go from 5505.73 to 5660.16, an increase of 154.43 (+2.8%).
There is a lot of talk about the market being a bit overvalued following the advances since March. On the other hand, there is a tremendous amount of money flowing from bonds to equities and a lot of fund managers are converting cash to equities so as not to fall behind the indices they are measured against. In addition, the economy does appear to be making some progress toward recovery. According to Sunil Reddy, who helps manage $30 billion at Fifth Third Bank, "Some people may say the market is getting a little bit ahead of itself. We should be OK, as long as technology companies show good revenue growth this quarter and the economy picks up."
Ten year Treasury Bonds rose at one of the fastest pace ever during July and August after being lulled to too low a yield by Sir Greenspan. They've settled down at around 4.5%, but it they continue to go up from there, stocks will have a difficult time advancing.
The bottom line
As usual, theres no such thing as a sure thing. We have issued a BUY signal based on our proprietary market timing system. The odds favor the market moving up, but lots can happen. We continue to be biased toward making sure we get the return of our money and believe thats more important than the return on our money.