Dissecting the S&P for General Market Direction: Large-, Mid- & Small Cap

February 22nd, 2014

by Steven Bauer

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My recent articles on dissecting Dow 30 component Companies are easy for me to share. Conversely - Dissecting all 1,500 component Companies of the Standard & Poor's is not nearly as easy, but I DO IT - ANYWAY! Here too, the S&P is offering a strong suggestion that this very old Bull General Market is deteriorating meaningfully. It is always a slow process of topping a multi-year bull market. It therefore requires much patience and discipline and a hell-of-a-lot of work. However, as I often say "Doing your homework / analytics each day over the years helps more than you might think."

Of the 1,500 component Companies in the Large Cap / Mid Cap and Small Cap, currently the ratios are growing ever more negative. For reference, thirteen months ago there were well under 10% that were losers. Just six months ago the number increased to about 15%. Today the numbers are getting serious and are over 25%. The breakdown is in my table below. I break it down (dissect) internally for each Sector and Industry Group and that is also very revealing.

Forecasting the General Market for me is fun. I use my Fundamental – Valuations and Cycle Analysis along with a very special Forecasting Methodology for all securities including all the 1,500 S&P Component Companies and their respective Sectors and Industry Groups.

Profits Rule – that's why I continually do all the forensic analytics.

Fundamental Valuation (weighting 40%) is foundational to all securities research and it, like the Marketplace itself has changed notably in the past few years. What used to be a very mechanical mathematical process is now not just a science, it is also an art requiring much right-brain talent. That remark even surprises me!

Cycle (Technical ) Analysis (weighting 35%) for me means identifying Bullish and Bearish Primary and Secondary (third and forth tier) Inflection Points for the General Market, Sectors, Industry Groups, Commodities, Companies and ETFs. Yes, it can be very accurately accomplished if you have the tools and the experience. I have many articles that briefly share how I go about the task. (See below).

Consensus Analysis (weighting 25%) Yes, the opinions of others i.e. "the streets" are important. It (their opinions) is always way too optimistic, but that is what they (financial analysts) are paid to do, bull or bear environment, it makes no difference!

Forecasting is a tool that I use primarily because it offers me what I call "lead time." That means, I have time to "Cherry Pick" the Best of the Best for Bullish Cycles and the Worst of the Worst for Bearish Cycles and leave the "Also Rans" to consider another day.

You might want to read my brief articles on my Methodology of "Investing Wisely." I use three pillars to support my Analytics. They are my Rotation Model, Inflection Points and my SHB Cycle. Just Click

Five Year Percent Chart of the Large (SPY) / Mid (MDY) / Small Cap (SLY) Indexes for Perspective

I have used the Standard & Poors – SPDR – S&P – 500 / 400 / 600 – ETFs quite purposefully. These are and were "Securities" that you can buy and sell. Yes, I track the Indexes but always with a corresponding ETF, both Regular and Inverse.

Combining my Fundamental – Valuations with my very unique Technical Analysis always provides a clear perspective of the Best of the Best (Favorable) for Bullish Cycles and the Worst of the Worst (Un-Favorable) for Bearish Cycles.

Please note from the peak of 2011 to the trough, it took a full year just to get even. Yes 2011 was my worst performance year but I was up over 20% and that all comes from implementation of the above 3 Pillars of a Methodology that produces results.

There are clear calculable reasons that tell that story well ahead of taking securities positions not with the nonsense hind-sight that we all are presented and read way too much of.

Ten Year Percent Chart of the Large / Mid / Small Cap Indexes for Perspective

This 10-Year Chart tells quite a clear performance story about these three Standard & Poors Indexes. Clearly there are percent differences that let you have a perspective that my preaching of Selectivity is a worthy sermon. First the Mid Cap beat the Large and Small Cap and stayed on top for all ten years. Reason -- there was better growth in the component Companies of the Mid-Caps. That is easily determinable by having a large Universe of Security to work with. Certainly the 1,500 S&P Companies also had some excellent growth oriented Companies in both the Large and Small Cap Indexes – Too!

Market Status with an Standard & Poors – 1,500 Focus

In my opinion, the Marketplace is: the fundamentals are too over-valued, the technicals are too over-bought, and the consensus opinion is way too bullish. Economic and financial news, on balance, is negative and not supportive of taking any Bullish positions. There are, of course, exceptions that come along – BUT!

I am currently turning ever more Bearish because my Fundamental Valuations have been deteriorating for quite some time, and my Technical Indicators are breaking down weekly. It's just that simple!

Table of My On Going Bullish and Bearish Percent Counts and Simple Mathematics

You will note that there is a notable difference between the "Bearish" percent as you move from the Large to the Small Cap Index. You will also note that the "Also Rans" remain a relatively high percent. Over time the swing from Increasing Bullish to Increasing Bearish is very notable. This supports much of my Methodology, in particularly the aspect of "Rotation" that is, within my work / analytics so pronounced.

Why the Major Indices (Dow 30, Nasdaq and S&P 100, etc) have remained lofty is also explained quite well. In addition the Why the general market breadth has been going down is also explained quite well.

Odds, unequivocal odds! Most understand the word but they gamble anyway. May I just share my insight of why my logo is "Investing Wisely?" Please take a look at the current worst numbers that clearly offer "odds" that are worse than Las Vegas. The Small Cap currently offers a 17% Bullish set of odds if you are buying or holding – long. The odds of losing are 37% and the odds of going no-where are 46%. It is your choice, but understand the odds, if you will. Oh, just to hopefully get your further attention, the trend of these percentages is going the wrong way.


At this writing dissecting this huge Universe of Companies suggests that the very old Bull General Market is in a termination phase/process. Topping of a very long-term Bull Market is always slow in its development and that requires much patience and discipline. However, when it hits the losses in portfolios are quick, large and often unrecoverable. Doing your homework each day helps more than you might think.

The table above tells a compelling story if you will take the time to study it. Just looking at the numbers and reading my narrative will do little for you to learn "the whys and wherefores" of how I go about, and perhaps how you should go about making money in the stock market. Spend some time pondering just what is happening. Yes, there is a pattern that has been repeated over and over throughout the history of the stock market. It is not just the "Now" it is ongoing. A collection or composite of this kind of data offers am unequivocal and quantifiable answer to:

a) where we have been and the all-important - why;

b) the increasing and decreasing – ebb and flow of the numbers offers much foresight and lead-time in my Forecasting;

c) it provides the ever changing list of Favorable and Un-Favorable securities to focus on for profit be it a Bull or a Bear Market;

d) It tells you quite clearly which Companies are currently "Also Rans." And, much, much more.

The trick is also simple knowing the Bulls from the Bears! As these ever changing cycles occur, these 1,500 (and all the other securities on the planet) will be offering strong rallies and also taking big hits or pull-backs that will clearly confirm to you that a Bear Market is in the making.

I indeed hope you will profit by my work.

Smile, Have fun, "Investing Wisely,"

Dr. Steve

Note : For a daily input and deeper view of my work / analytics you might want to click, and scroll down to my "Thumb-Nail" articles on my personal blog, which I update daily.

To Email Me with your questions or thoughts: senorstevedrmx@yahoo.com.

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