Point & Figure Technical Analysis
11-4-2004
At the bottom is a chart of the S&P 500. A quick reminder of its importance to your retirement plan investing health:
* 75% of all stock market capitalization is in the S&P 500.
* 75% of equity mutual fund assets are invested in the S&P 500.
According to Morningstar® mutual fund research, as of the end of 2003, the average mutual fund has an 87% correlation to the performance to the S&P 500.
The bad news is that this key index has gone down and back up to the same level in the last month.
The good news is that is that this key index has put in a higher bottom than the August drop, and is very close to “breaking out” to the upside.
I think that increased stock market exposure would be in order if this index trades at 1170. This morning it trades at 1144.
11-09-04
We need to have more exposure to the stock market right now. The S&P 500 broke out of a narrow trading-range on Friday, November 5th.
As you see on the chart below, the “break-out” of this key indicator looks very much the same as last year. Back and forth, up and down during that time period between 965 and 1010.
Finally in early October of 2003, the S&P 500 broke out above 1020 and moved in short order up to the March 2004 highs.
The most important aspect of this current situation is the timing of the “break-out.” We are now in the important November-to-May period of the stock market. This period of the calendar year has been much more profitable than to be invested in stocks from April-to-October.
The “break-out” of this indicator will not go unnoticed by the large institutional pension fund managers and mutual fund managers. If this “benchmark” index is moving up in price, this late in the calendar year, these professionals have to be in the stock market. Their performance can’t fall behind this late in the year.
As stated in my previous communication, when this indicator traded at 1170, we need to pay attention. It did, and we are going to increase our exposure to the right mutual fund options in your retirement plan menu.
The “break-out” of this indicator does not have to be treated as an event. You can gradually increase your exposure to the right mutual funds in your retirement plan. As soon as you can find the time to make the changes, buy some of the mutual funds mentioned above.
11-16-04
The chart nearby represents the Bullish Pct For All Equity Mutual Funds. Of the over 12,000 mutual funds available, there are over 10,000 mutual funds that have some degree of stock market exposure. Here is a key to help you follow the movement in this chart better:
As you see, the percentage of stock mutual funds on a technical BUY signal has moved up from under 20% in August, to over 98% today. That is the easy part—knowing when the stock market is moving up and you
can own just about any mutual fund available to you an make money.
You know by now that I don’t spend the time to show these charts and make these points unless there is more to be learned than just the easy stuff.
Below is the chart of the percentage of the same universe of All Equity Mutual Funds that are outperforming the S&P 500. This is always an important concept to understand for the following simple reason.
If you are going to take the risks associated with investing in stock mutual funds, don’t you want to own the mutual funds that are at least performing as well as the overall stock market (the S&P 500), or maybe even be lucky enough to own the mutual funds that are OUTPERFORMING the S&P 500?
The above answer I am looking for is YES, in order to make my next point.
As of today, only 28% of the same universe of Equity Mutual Funds are outperforming the S&P 500 during its recent upward move. The point here is the you don’t have a very good chance of owning these specific mutual funds if you are not aware of the concept of Relative Strength.
