By Samuel Lee

It's a law of nature that bad things happen more often than not. The possible outcomes that humans consider desirable are a sliver of all possible outcomes. It's why genetic mutations usually hurt or kill offspring born with them, why throwing a wrench into a finely turned engine will almost never make it run better, and why stock prices are more prone to sudden collapses than sudden rises.

When should you sell your stocks?

We asked that specific question several weeks ago, before we exploited the fractal nature of stock prices in developing an objective statistics-based method for determining when to tell if an upward microtrend for stocks was about to break.

We then tracked stock prices closely using that method, as it didn't take long before the recent upward microtrend we were tracking would appear to have broken, as stock prices suddenly dropped below the statistically-expected, or "normal", target range:

(click to enlarge)

But then, one day earlier, we said that maybe that isn't such a good signal to follow in deciding to pull the trigger for selling stocks, explaining the technical reasons why, and then suggesting a more "conservative approach" for deciding when to actually sell:

We should also recognize that since we're using both a power law-based regression analysis and a statistics-based

Before the market opened the preliminary report on April Retail Sales showed a 0.1% increase. Small though it was (with a ±0.3% confidence), it beat the consensus. But futures were down and the S&P 500 opened lower anyway. In fact the index slid to its intraday low, off 0.43% about 25 minutes later. It then reversed directions to its intraday high, up a mere 0.14% during the lunch hour. The index then zigzagged to a flat finish. Technically, however, the final tally was a new all-time closing high by a teeny weeny 7 basis points. If you're partial to percents (I am), that's a gain of 0.004%.

Here

In our last installment, we took an options position, and we promised to report back on its outcome: good, bad, or scratch. (A bit bold, since we didn't know if SA editors would grant us this return visit; obviously, they did.)

Recapping just a bit, we began the process with a hard look at SPY fundamentals.

The fundamentals

On the bull side: momentum, analyst sentiment, Fed liquidity, somewhat better employment, and climbing the wall of worry.

On the bear side: currency debasement, slowing earnings growth, slowing revenue growth, following a bearish annual pattern (like 2010, 2011, 2012), and negative sentiment among some market titans.

Updating the fundamentals since May 3, the more things change the more they remain the same.

Bull side update: Boom! SP futures scale a new high, 1633.25 Monday, as did the Nikkei 225, so (global stock) momentum is as strong as ever. Headline retail sales

As of this morning, 88% of S&P 500 companies are trading above their 50-day moving averages. This is a very high reading, but it's not quite as high as the reading we saw back in January.

(click to enlarge)Looking at the ten major sectors, the Consumer Discretionary

The S&P 500 (SPY) closed at 1,634, another record, and has been rallying throughout Q1 earnings season. Over 90% of the S&P 500 reported earnings and the results are good, but not great. Nonetheless, the numbers are driving investors to continue to bid up the market. The S&P 500 is overextended on a short term timeframe and may be due for a pause. However, the S&P 500's earnings and valuation seem to support the bullish case on a longer timeframe. In this article I will look at these dynamics in more detail and focus on the top 100 companies in the S&P 500.

S&P 500 Price Action

The S&P 500's record high from Friday also marks the return to the top of the uptrend channel from last November. The S&P 500 is overextended, but that is not necessarily bearish. A few times the S&P 500 has worked off overextended conditions

Before the US market opened, the world was back in rally mode, especially Japan's Nikkei 225 with its Friday gain of 2.93%. India's SENSEX was up 0.72%, China's Shanghai Composite 0.62% and the EURO STOXX 50 a more modest 0.44%. With economic news, the S&P 500 wandered aimlessly in an eight-point trading range to the intraday low, off 0.18%, shortly after noon. Less than an hour later it emerged into the shallow green until a rally in the final minutes took the index to a closing gain of 0.43%, which was enough to set a new all-time high.

An hour before the market opened, Thursday morning's weekly unemployment claims came in better than expected. Pre-market futures improved, but remained in the shallow red. The S&P 500 experienced a light selloff in the morning, rallied to its early afternoon interim high, up a fractional 0.14%. Afternoon selling accelerated around 2:30 and the index hit its intraday low, off 0.59%, five minutes before the close. But in those last five minutes the loss was trimmed to 0.37%.

The US markets followed the worldwide trend of modest declines: The Nikkei -0.66%, the Shanghai -0.59% and EURO STOXX 50 -0.41%. The hawkish comments of Philly Fed President Plosser on Bloomberg TV probably didn't help. Of course,

It seems as if higher stock prices are finally starting to have an impact on the sentiment of investors, and we stress

Exchange Traded Funds (ETFs) are increasingly popular as an alternative to mutual funds. One often-cited reason is that ETF management fees are lower.

But are ETF fees really lower and do lower fees result in better performance?

A common way to show that ETFs are cheaper is to compare the average management fee for ETFs to all mutual funds. But that is not an apples to apples comparison. Almost all ETFs are index funds. Only 3.8% of mutual funds are index funds (based upon Morningstar list of US Open End Mutual Funds, all share classes).

Index funds naturally have lower management fees than actively managed funds. As a result, the average ETF management fee is lower than the average mutual fund because most mutual funds are actively managed.

In order to produce a more meaningful comparison, I reviewed some mutual funds and ETFs that are:

• From the same companies

Markets around the world were in rally mode yesterday. The Nikkei gained 0.74%, the Shanghai 0.48%, the SENSEX 0.51%, and the EURO STOXX 50 rose 0.56%. US Markets followed these role models. With no economic news to speak of, futures were down fractionally and the S&P 500 dutifully opened lower. But it immediately began to arc steadily higher to the noon hour. The index paused during a short lunch and then renewed it arc. During the early afternoon, Wednesday's modest rally seemed to lose steam and came within a fraction of a point of slipping into red. But the "buy the dip" trade was ready, willing and able. The index closed with a gain of 0.41% and only nine basis points from its intraday high.

Here is a 10-minute chart of the week so far.

(click to enlarge)

Volume was

The big news in the popular financial press was the Dow breaking 15,000. But readers here know that the far broader S&P 500 is my preferred gauge of the US market. The 500 hit its fourth consecutive all-time high and the fifth all-time high in six sessions. Yesterday's 0.52% closing gain, a mere 7 basis points off its intraday high, was a close runner-up to the eurozone, where the EURO STOXX 50 rose 0.67%, but neither came anywhere near the stunning 3.55% gain in the Nikkei 225 after a four-day weekend. Reuters attributes the US gains to optimism over German data (factory orders surprised to the upside). But that seems far too specific. A prolonged bout of global QE euphoria strikes me as a more plausible explanation.

(click to enlarge)

Volume was still on the light side, 6% below its 50-day moving average, but

When considering a new market position, first you forecast. There is never a lack of pundits to advise you, of that you can be sure. Here is what each camp will tell you, in brief:

Fundamentals: the bull case

At this present moment in time, the bulls say, "nothing succeeds like success." Rising markets foster even higher markets. Whether they want to or not, some investors believe they must buy, or miss out. So the momentum is with the bulls.

Noted market prognosticators are calling for higher prices. Laszlo Birinyi recently projected a YE 2013 SP of 1900.

With the wind at their backs, by way of massive, coordinated G20 interest rate suppression and unparalleled liquidity, stocks have nowhere to go but up.

Unemployment declining, though slowly. In last reporting period, from 7.6% to 7.5%. Payrolls increased 165,000 vs. 155,000 expectation.

As for the unbelievers, we have this:

No fund style earns better than a Neutral rating at the beginning of the second quarter of 2013. My style ratings are based on the aggregation of my fund ratings for every ETF and mutual fund in each style.

Investors looking for style funds that hold quality stocks should look no further than the Large Cap Blend, Large Cap Value, Large Cap Growth, All Cap Blend, and All Cap Growth styles. Only these styles house Attractive-or-better rated funds. Figures 6 and 7 provide details. The primary driver behind an Attractive fund rating is good portfolio management, or good stock picking, with low total annual costs.

Note that the Attractive-or-better predictive ratings do not always correlate with Attractive-or-better total annual costs. This fact underscores that (1) low fees can dupe investors and (2) investors should invest only in funds with good stocks and low fees.

See Figures

The eurozone started the week on a subdued note, where the EURO STOXX 50 lost 0.48%. There was no US economic news to influence the market, premarket or otherwise, the S&P 500 opened higher, bounced a couple of times near the opening price and then traded to its mid-afternoon intraday high, up 0.33%. The index drifted lower in the final ninety minutes of trading and closed the day with a

With data as of last week, ICI's tally of equity fund flows shows no net inflows for the past two months, even as equity prices have hit new all-time highs. Bond funds, meanwhile, continue to enjoy strong inflows, even as bond yields remain very near