back to blog homepage

The High And Low Of It

S&P 500 Index with Technicals

Since I stuck my neck out yesterday and said my assessment of the market was that we had seen the low for the year based upon the various reasons given, I wanted to follow up since today is one of those inevitable down days that we will see as we fight our way higher from the lows.

In the chart above, I wanted you to look at the volume in the market so far today compared to the past few days. If you look at the second section of the graph, you will see the volume bars with a black line overlaying it. If you look all the way to the right side you will see a small red bar compared to the big green bar and preceding days’ big red bars.

Today’s selloff – at least so far – is happening on significantly less volume than the previous several days. This to me says that the selling pressure has subsided and that there are fewer market participants pushing prices down. This is significant if my thought from yesterday’s blog post is true – that we saw a capitulation in selling the other day which helped to support the hypothesis that we put in the low for the year and the end of the current correction (don’t get the idea that it will be an easy road higher, it will be a fight and a scary one at that, but I truly believe we will be higher as we move into year-end based upon the many reasons noted yesterday).

Additionally, I reviewed the New York Stock Exchange statistics (see below) for all trading days in August for new Highs and new Lows in the market:

8/1: New Highs 35 Vs. New Lows 93
8/2: New Highs 20 Vs. New Lows 169
8/3: New Highs 14 Vs. New Lows 275
8/4: New Highs 10 Vs. New Lows 445
8/5: New Highs 6 Vs. New Lows 828
8/8: New Highs 3 Vs. New Lows 1292
8/9: New Highs 3 Vs. New Lows 717
8/10: New Highs 3 Vs. New Lows 162

As you can see from the data above, the number of companies making new 52 week lows in stock prices grew significantly moving into what I’ll call (hopefully not just temporarily) the capitulation day. And they lessened significantly yesterday during the big rally. Today, so far, they are way less than they have been: Fewer new lows indicates that the sellers exhausted themselves on the capitulation day.

As I write this the market is down 2.5% from yesterday’s close. Honestly, that is a healthy consolidation of yesterday’s big gains – and given the low volume it doesn’t sway my opinion.

We have been buyers today for clients with significant cash levels on the books. In coming days, we will be reallocation from significantly overvalued bond allocations to undervalued equity allocations in other accounts. We will also be swapping among companies from those that we don’t believe have as much upside going into year-end to those that we see having more upside. That will likely include adding some dividend yield to portfolios – we are getting confirmation today that dividend yield will be important going forward.

If you look below, you can see a screen cap of our Cash Flow Equity portfolio. We have a number of clients that need additional income during their retirement years to supplement other sources of income from retirement accounts. These are mainly Master Limited Partnerships and REITS that pay a 6% to 8% dividend yield.

cash-flow-equities

Investors have read between the lines in the Federal Reserve statement from yesterday and seen that since the Fed plans to keep yields low for at least two years, companies with solid income streams that pay out most of their dividends to their shareholders are going to be favored investments for people who need income from their portfolios to sustain their lifestyles.

This is probably what normal will look like in the future.

Mark