Bob Brinker Update for July 2006

Steve Thompson’s Bob Brinker Timing Model Update For July 2006

Jul 5, 2006 Kirk Lindstrom

Steve gives his update of Bob Brinker's Market timing model indicators. At the end of the article, Steve predicts if Brinker will remain bullish or turn bearish.

07/05/06

In our Bob Brinker Free Discussion Forum we've been talking about Bob Brinker's market timing model. He uses this in his "Marketimer Newsletter" for predicting the stock market in the months ahead. This month, Steve Thompson gives his update on Brinker's timing model.

Steve Thompson's Bob Brinker Timing Model Update For July 2006

It has been awhile since I've written how I feel Bob Brinker is viewing his model. (Read Steve's last update here.) As we begin the third Quarter of 2006 things are looking good for the U. S. stock market. In late May I thought Bob's latest buying opportunity would be 1220. I was pleased to discover it was actually 1250. That tells me Bob was not expecting more than a minor correction in this on going bull market. To me this was a very bullish sign.

Let's look at each of the four basic indictors of Bob's long-term stock market timing model.

Valuation: Using Bob's 2006 S&P 500 earnings estimate of $81 and a value of 1280.19 we get a valuation or P/E of 15.8. This is historically not considered to be excessive for bull markets. Forward Earnings estimates are still looking strong and I think there is the distinct possibility Bob will increase the $81 figure he is using in the second half of this year. In the recent past Bob suggested a S&P 500 target of 1350 should be attainable prior to years end. From the current level that would only require a less than 6% move and the P/E would only be 16.66, still in the bull comfort zone. With core inflation and long-term rates reasonable I am sure Bob has no worries at all about the Valuation portion of his model. This one is bullish.

Monetary Policy: We are all well aware Bob has not been happy with the last several FED Funds rate increases but perhaps the thing that he is watching even more closely is money supply. The seasonally adjust growth in M-2 has been plodding along just above and in some cases just under the headline inflation levels for several months. This is worrisome for Bob as he views real growth in money supply as the fuel for future economic growth. I am sure it is difficult for Bob to imagine future healthy economic growth should this become a trend. I have thought Bob had viewed this indicator bullish as the FED moved to normalize rates. Now I believe Bob is looking at is as neutral teetering towards no longer being accommodative, but a hindrance.

Economic: The final first Quarter GDP came in at an upwardly revised 5.6%. This was due in part to fewer imports and stronger profits by corporations. The pace of the economy is expected to slow due to softening housing. This could ripple through much of the economy in the second half of this year. Consumer spending is still looking strong. Perhaps the figure in the GDP report Bob will sit up and take special notice of is the Core Personal Consumption Expenditures (PCE). That came in at 2%. It is widely believed this is the inflation data the FED relies on most. I am sure Bob is hoping the FOMC will see this and a flat yield curve as proof inflation is not a problem and stop increasing short-term rates as the economy moderates toward an annual GDP rate of 3 to 3.5%. I believe Bob views the Economic indicator as bullish.

Sentiment: The latest poll by Investors Intelligence shows 37.4% bullish, 36.3% bearish, and 26.3% correction. The four-week moving average of Bulls/(Bulls + Bears) comes in at 52.43%. The Put/Call ratio 10 day moving average is .92 while that same data point 60-day moving average is .99. This is all showing a healthy amount of doubt, very bullish.

As I see it we have three bullish and one neutral. Plenty of evidence to remain fully invested for the foreseeable future.

Steve Thompson

Thanks Steve.

Make sure you read Bob Brinker's 5 root causes for a bear market and Steve's last Timing Model update to see if his last update turned out to be true!

Discuss This Article

What do you think? Ask questions about this article and discuss Bob Brinker In our Bob Brinker Discussion Forum.

Chat: We also have an investment chat here that many attend while listening to "Moneytalk" on the radio. Drop in and the regulars can usually give you a link to listen to the show on your computer if your local station doesn't carry the show.

Kirk Lindstrom:

DISCLAIMER: Answers & my words are general in nature, are not meant as specific investment advice, and do not necessarily represent the opinion of anyone but Kirk. Individuals should consult with their own advisors for specific investment advice.

The copyright of the article Bob Brinker Update for July 2006 in Investment is owned by Kirk Lindstrom. Permission to republish Bob Brinker Update for July 2006 in print or online must be granted by the author in writing.