Not a good time to add more money to the market

The weekly oscillator is at the top. This indicates the probability of it coming down is high. With that it will bring the prices down as well.

The daily oscillator is at the top and turning down. This indicates the probability of it coming down is high. With that it will bring the prices down as well.

Since both daily and weekly price charts are giving a high probability of coming down in prices, it is not a good time to add more money to the market. It will be prudent to wait and see what happens.

If the market does not come down in the next few weeks but goes higher and the oscillators remain at the top, then it will indicate a strong uptrend has begun.

Just to reiterate. Investing in Growth Stocks is still not working.  What is working is investing in dividend paying value stocks.

Market uptrend still intact

The ETF for S&P500 (ticker: SPY) is confirming its uptrend. The price went above its prior high, this confirms the uptrend (see chart below).

Mid-Cap and Small-Cap category of stocks are not yet showing a price uptrend. This can be seen in price charts of ETFs MDY and IWM. In both cases the prices have not gone above their prior high.

Market Breadth Ratios are not showing strength. Investing in Growth Stocks is still not working.  What is working is investing in dividend paying value stocks.

An opportunity to sell “Growth Stocks” in your portfolio, if you haven’t done so already

The price uptrend is very anemic. Mid-Cap and Small-Cap category of stocks have broken their price uptrend. This is shown by the price charts of ETFs MDY and IWM. In both cases the prices cut its prior low.

The ETF for S&P500 whose ticker symbol is SPY is showing a price uptrend but the uptrend is very anemic.

There is a high probability that prices will go up in the next few days. The reason for this is explained in the chart below. This up movement in price should be taken as an opportunity to sell “Growth Stocks” in your portfolio, if you haven’t done so already.

Market Breadth Ratios are weak

Market Breadth Ratios are showing weakness. We have not had any 500 plus reading in the “4% UP” column since the SELL signal on July 10, 2012.

Market Analysis

We have “market is in weak uptrend” showing on the blog page, but investing in growth stocks is not making any money. So what style of investing is making money in this weak uptrend?

1.       What is not working is investing in Growth Stocks. This blog site has been saying that since mid May 2012. We have had a few weak buy-to-sell cycles since mid-May and in all those cycles investing in growth stocks has been a money losing proposition. This blog site has been telling its readers to invest only 20% of their portfolio in growth stocks. This is a way to limit the downside risk, if this style of investing does not work. The money management aspect of investing is very important to limit the downside risk.

Is growth stock investing style over? No it is not, it is just not working in the current environment. This style of investing offers the maximum potential gain compared to any other style of investing. However this style, just like any other style does not work all the time.

2.      What is working is investing in dividend paying value stocks. In this style of investing the returns in the long term, from dividends is nearly half of the overall gain in the portfolio. The other half is the capital gain in stock price. Also if one picks the right kind of stocks here, the overall portfolio is not very volatile. For some people this style of investing matches their personality, since they cannot handle the volatility in the portfolio and prefer steady small gains.

3.      It is very important to pick a style which matches one’s personality, so there is no conflict between the investing style and the person’s nature. If there is a conflict then every signal the system gives will be questioned and resisted by the investor and he/she will not be able to invest in a productive way.

Market Checkup

The oscillator reached the top and has turned down. The prices barely went above the prior price high and this indicates that the uptrend is not very strong. This blog has been saying that for some time that we are in a weak uptrend.

Now we need to wait and see if the prices come down and undercut the prior price low before the oscillator reaches the bottom. If it does the price uptrend comes under question.

In the meantime what should an investor do? The growth stock portion of your portfolio should go 100% into cash till that style starts to work. The dividend paying value stock portion of your portfolio should remain invested till the market is no longer in uptrend.

Market Checkup

The oscillator has reached the top. From this point it normally turns down if the uptrend in the market is not very strong. If the uptrend is strong then the oscillator stays close to the top.

We need to see tomorrow if the oscillator turns down. If that happens and the prices do not go above the prior high, then the uptrend comes under question.

The momentum growth stocks are still not participating in this uptrend. What is working is the dividend paying stocks.

Market still in weak uptrend

The uptrend is still intact, though it is a weak uptrend. The reason we say the uptrend is still intact is because the prices did not cut the prior low. Read July 11, 2012 blog to get an explanation of what is a weak uptrend.

Even though the market went up by 1.7% on July 13th, we did not get good readings for "5 day" and "10 day" ratios. Also the “4% up” column did not get a value above 500. This indicates that growth momentum stocks are not participating and the uptrend is weak.

What does a market in weak uptrend mean?

When the price range of the upper limit and the lower limit, in which the prices move are so wide that the movement from the lower limit to the upper limit shows the characteristics of a trend, we call it a weak uptrend.

Here the prices are still moving within a band/range that is why we cannot call it a strong uptrend.

When the market is exhibiting these characteristics, growth momentum stocks do not participate. For growth momentum stocks to participate we should have a strong uptrend.

The BUY to SELL cycle lasted 7 days in the Market Breadth Ratios Indicator

The BUY to SELL cycle lasted 7 days in the Market Breadth Ratios Indicator. During this time we did not get a reading over 500 in the “4% up” column. This shows there was not much strength in the move.

As noted in the blog of June 30^th. “Since the Growth Momentum Leaders stocks did not participate to the level expected, we should Buy/invest only 20% of the portfolio in these types of stocks. If your portfolio rises by 2%, then BUY another 40% of the portfolio. If it goes up another 2% be fully invested.”

The money management aspect of investing is very important to limit the downside risk.

The market is still in uptrend but needs close watching

The market is having a normal correction after going up since 6/8/2012. The prices should come down till the oscillator reaches its bottom.

When the oscillator reaches its bottom, the prices should not under cut its recent low. If it does then the price uptrend comes into question.

Which areas of the market are doing well

What is working very well in the stock market is:

1. Small Cap stocks. Here the upside “acc of trend” is 1.9. The “thrust of trend” is 18, the highest in all the indexes followed. Anything more than 10 is considered good.

2. Big Cap Dividend paying stocks. Here the upside “acc of trend” is 2.0, the highest in all the indexes followed. The “thrust of trend” is 14, anything more than 10 is considered good.

What is not working that well in the stock market is: Growth Momentum Leaders stocks. Here the downside “acceleration of trend” is -1.2. The “thrust of trend” is barely 5. These readings have improved in the last few days. However we want them to be better before we go fully invested in these types of stocks.