John Thomas Financials Chief Market Analyst Wayne Kaufman Weekly Report

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Weekly Report From John Thomas Financials Chief Market Analyst Wayne Kaufman

Monday March 4, 2013 Closing prices of March 1, 2013

The S&P 500 eked out a 0.17% gain last week to prevent what would have been its first two-week losing streak since November 16th.

Major indexes were led higher on the week by the Dow Jones Transports, up 0.69%, and the Dow Jones Industrials, up 0.64%. The laggards for the week were the Bank of NY Mellon ADR Index, down 0.98% and again hurt by strength in the U.S. Dollar Index, and the S&P Midcap Index, down 0.50%.

Industry groups were mixed as fourteen of the twenty-four S&P industry groups traded higher last week.

Retailing led on the week with a gain of 1.92%, followed by Automobiles & Components, up 1.81%. The downside was led by Technology Hardware & Equipment, down 1.81% and hurt by the persistent weakness in Apple Computer, which dropped to its lowest level since January 2012. Industry groups that made 52-week high last week were defensive groups. These were Food & Staples Retailing, Commercial & Professional Services, Insurance, Household & Personal Products, and Food, Beverage & Tobacco. Of the ten S&P sectors, only Consumer Staples made a new high last week. The defensive posture by investors is reflected in our proprietary options indicator, which at 0.91 shows pessimism and is at a level usually seen at bottoms, not tops.

In our last report way back on February 11th we repeated our multi-week commentary that the mid-February period was important, and that negative
divergences were becoming extreme.

The S&P 500 topped on February 19th, and February 20th became the first 90% down day since November 14th, followed three sessions later by another 90% down day on February 25th with only 3.87% of the S&P 1500 trading higher, the worst market breadth day since June 21, 2012. Since 2/25 each of the four sessions has shown positive breadth but only one was strong, with 87.13% of stocks advancing on 2/27, showing some hesitancy among bulls.

In the short-term stocks are not overbought, the negative divergences are gone, and investors have positioned themselves defensively as discussed above.
We have entered a period of very positive seasonality which lasts until March 6th. The S&P 500 is just under resistance at the 1525 – 1526 area. With only 53.33% of stocks
over their own 10-day moving averages, and with our options indicator at a pessimistic 0.91 (a level usually seen at bottoms, not tops), we will not be surprised to see this
resistance broken. Should sellers become more aggressive over the next few days we would consider that a red flag, although we think it will only mean a longer period of
consolidation, and not the signal that an important long-term top is in.

We have been and remain longer-term bullish for multiple reasons. One of them is stock valuations, which remain very attractive based on spreads between equity and bond yields.

They remain well above historical levels and are at levels where stocks should be attractive versus bonds, and are challenging the lower part of the range they have been in since August 2011. Should they stay in the lower part of the range, or even break through the bottom into the levels where they were pre-August 2011, we think that would be very bullish and show increasing confidence on the part of investors as they demand less risk premium to own stocks. If this happens we think it means investors will have reached a “point of recognition” where they finally accept that the economy is healing (more slowly than it should be, but healing nonetheless) and we are not going to see a repeat of the economic and market crash of 2008 – 2009. The strong money flows into equity funds so far this year may indicate that this point of recognition has already arrived.

We are 97.4% through Q4 2012 earnings season. So far 487 of the S&P 500 have reported with a terrific 68.8% beating estimates, 9.5% in line, and 21.7% disappointing. In Q3 64.5% beat estimates, 10.7% were in line, and 24.8% missed. Second quarter earnings season ended with 66.6% beating estimates, 10.9% were in line, and 22.5% missed. First quarter earnings season ended with 67.3% of stocks beating estimates, 9.6% were in line, and 23.1% disappointed. Fourth quarter 2011 earnings season ended with 62.2% of stocks beating estimates, 9.8% were in line, and 27.9% disappointed. Current S&P 500 projected aggregate earnings for 2013 are just under $112. A 13 P/E based on the 2013 number equates to an S&P 500 of 1454, while a 14 P/E equates to 1566.

In summary, stocks are no longer overbought and investors are positioned defensively. Options buyers are very pessimistic, with our options indicator at a level where bottoms usually occur, not tops. We remain bullish longer-term due to improving economic data, positive market action, valuations, and the globally synchronized program of asset purchases by central banks. We have been and remain concerned about possible weakness as earnings season winds down and investors may become preoccupied with the sequester. Still, we think any weakness will not be extreme and just means a longer period of consolidation.

Based on the S&P 500 the short-term, intermediate-term, and long-term trends are up.

Download The Full Kaufman Report

Important Disclosures
I, Wayne S. Kaufman, hereby certify that all of the views expressed in this research report accurately reflect my personal views about any and all of the subject issuer(s) or securities. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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About John Thomas Financial
John Thomas Financial, a member of FINRA and SIPC, is an independent broker- dealer and investment banking firm headquartered in New York City's Wall Street district. Emphasizing a client-centric approach to managing all aspects of its business, John Thomas Financial and its affiliates offer a full complement of retail brokerage, private wealth management, and corporate advisory services tailored to the unique needs of its clients. The firm publishes the Fiscal Liquidity Index a unique daily indicator that looks at government spending and its impact on the financial markets, as well as The John Thomas Financial Economic Outlook, a research report analyzing consumer sentiment, market outlook, credit cycles and dozens of other market influences. For more information on the firm, please visit:

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