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Author: brucedoe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 10556  
Subject: Stock Market Review - 29 July 2005 Date: 7/31/2005 11:34 AM
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Although most indices advanced slightly (the DJIA actually declined a tad), it was another good week as 662 issues hit new 52-week highs out of 3,582 issues traded (18.5% of the issues traded), making it 9 weeks in a row where more than 10% of the issues traded hit new 52-week highs. The number of 52-week lows is climbing at 58, but the number is still not alarming. The cumulative daily breadth also continued its march into new territory at 154,000. The Dollar Index continued its slow decline to 89.23, down from 90.33 on July 5th (the high for the year).

It was another great week for REITs, although one mortgage REIT - Annaly - was included in the new 52-week lows. One has to wonder how much further the rise can go for many REITs. For example, one popular REIT - General Growth Properties (GGP), mall REIT - now has a dividend of 3.1% (which we don't own). You can get a 3-mo. Treasury bill paying 3.4%. The record setting escaped the health care REITs where you can still get dividends from 6% (Health Care Properties (HCP) to 6.5% for Health Care Realty (HR). But the records were hardly restricted to REITs. One stock that we do own, for example - Walgreen's (WAG) - hit all-time highs during the week. And, much to our delight, Genuine Parts (GPC) also hit an all-time high during the week.

Although the NASDAQ didn't share such a high percentage of stocks hitting new 52-week highs, it did have 468, the highest number of the year and continuing the string of weeks with more than 400 new 52-week highs to 3. The number of 52-week lows was 63, making the 4th week in a row with fewer than 100. The NASDAQ continued to trade fewer stocks than the NYSE. The NASDAQ 100 managed to have a gain of about 0.3% and gained a bit on the NASDAQ Composite.

brucedoe
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Author: jgilberAZ One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8595 of 10556
Subject: Re: Stock Market Review - 29 July 2005 Date: 7/31/2005 5:04 PM
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I enjoy these weekly reviews. I'm not quite sure how to interpret them, however. I mean, it sounds good, but what does it look like when things aren't going so well? Could you possibly post a retroactive review of a week during the worst of the dot com bust? That would be nice to have around for a comparison.

Thanks,
Jeff


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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8596 of 10556
Subject: Re: Stock Market Review - 29 July 2005 Date: 7/31/2005 5:51 PM
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Hey Bruce,
check this out:

http://www.hussman.net/wmc/wmc050801.htm


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Author: JamesWAllen Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8597 of 10556
Subject: Re: Stock Market Review - 29 July 2005 Date: 7/31/2005 8:05 PM
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From the Hussman essay:

For example, the chart below is similar to the previous one, but presents the advance-decline lines of the smallest 30 stocks in the S&P 500 (NYSE only) versus the largest 30 stocks in the Russell 2000 (NYSE only). Again, these stocks have very similar market capitalizations, but nowhere near the same behavior in terms of breadth.

I find this assertion impossible to believe. The Russell 2000 are companies with market cap less than the largest 1000 companies by market cap.

Jim

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Author: Chapter3 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8598 of 10556
Subject: Re: Stock Market Review - 29 July 2005 Date: 7/31/2005 8:48 PM
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I find this assertion impossible to believe. The Russell 2000 are companies with market cap less than the largest 1000 companies by market cap.

=====
Hey Jim,

According to this site...
http://www.indexarb.com/indexComponentWtsSP500.html

...the smallest S&P 500 company by component "weight" (the closest I could find to market cap in a list/table) is Delta, and Delta's market cap is showing at $425 million at Yahoo Finance.

I randomly checked the market caps of a few companies in the Russell 2000, and hit upon one pretty quickly (AAR) that has a bigger market cap ($586 million).

So the overlap in market caps might be unusual, but it's there. My criticism of the particular point Hussman is making in that section of the report is that the smaller S&P companies are likely to be smaller because they've hit hard times, whereas the opposite is likely to be true for Russell 2000 companies. That could partly explain the difference in the A/D lines, no?

C3


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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8599 of 10556
Subject: Re: Stock Market Review - 29 July 2005 Date: 8/1/2005 1:58 AM
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I find this assertion impossible to believe. The Russell 2000 are companies with market cap less than the largest 1000 companies by market cap.


So?

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Author: brucedoe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8600 of 10556
Subject: Re: Stock Market Review - 29 July 2005 Date: 8/1/2005 10:40 AM
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Diaboli:

Yes, Hussman is a good one. I've been asking on the REIT Board whether people are starting to put on Stop-Loss orders.

brucedoe

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Author: JamesWAllen Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8605 of 10556
Subject: Re: Stock Market Review - 29 July 2005 Date: 8/1/2005 2:29 PM
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C3,

My criticism of the particular point Hussman is making in that section of the report is that the smaller S&P companies are likely to be smaller because they've hit hard times, whereas the opposite is likely to be true for Russell 2000 companies. That could partly explain the difference in the A/D lines, no?

Yes. It's time to revise the indexes.

I thought that he was struggling to find some negatives for the market. Your analysis confirms it.

Jim

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Author: Chapter3 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8606 of 10556
Subject: Re: Stock Market Review - 29 July 2005 Date: 8/1/2005 2:49 PM
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Yes. It's time to revise the indexes.
I thought that he was struggling to find some negatives for the market. Your analysis confirms it.


=====
Hey Jim,

Hussman's usually pretty balanced, letting his objective criteria inform him. The section of his essay re: the smallest companies in the S&P 500 vs. the largest in the Russell is minor. I wouldn't judge the whole piece based on that one point. I think he does clearly make the case that the A/D line is being supported by small companies, regardless of which index they're a part of.

As for revising the indexes, why would that be necessary? I mean, it will happen naturally, as indexing decisions are made. But the idea behind the S&P 500, as far as I know, isn't that it's meant to represent the largest 500 companies in the U.S., but 500 of the largest. It's meant to be balanced by sector and industry, too (among other things), so if some industries are smaller, the companies representing them will be smaller as well.

C3


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Author: JamesWAllen Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8607 of 10556
Subject: Re: Stock Market Review - 29 July 2005 Date: 8/1/2005 3:13 PM
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C3,

But the idea behind the S&P 500, as far as I know, isn't that it's meant to represent the largest 500 companies in the U.S., but 500 of the largest.

I thought that the S&P 500 was the 500 largest companies, and that the index is updated on a regular basis to achieve that.

Jim

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Author: Chapter3 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8608 of 10556
Subject: Re: Stock Market Review - 29 July 2005 Date: 8/1/2005 3:33 PM
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I thought that the S&P 500 was the 500 largest companies, and that the index is updated on a regular basis to achieve that.

=====
I just checked the S&P site. A PDF I found there (not sure how to link to it) said that two (among several) of the criteria for index inclusion are:

Market cap in excess of $4 billion. This market cap minimum is reviewed from time to time to ensure consistency with market conditions.

Sector representation. The Index Committee strives to maintain a balance for the S&P 500 in line with the sector balance of the universe of eligible companies greater than $4 billion.


They also say that:

Continued index membership is not necessarily subject to these guidelines. The Index Committee strives to minimize unnecessary turnover in index membership and each removal is determined on a case-by-case basis.

Based on this, the index wouldn't be the 500 largest companies, but instead 500 companies with market caps above $4 billion. Their committee has some latitude in deciding which companies to include, based on sector representation and a number of other criteria (financial viability, liquidity, public float, etc.).

So the overlap with the Russell 2000 must come about due to the fact that they don't necessarily "kick out" companies that fall below the minimum market cap requirements.

Interesting...

C3


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