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Your probably right but we may get another bounce on lower oil prices. Btw, I think we're still in that 4th wave (Ndx) but the 5 is beginning to look like it will be quickly reversed once the break higher happens.
I went from cash to long Friday but have some regrets.
Thinking retail investors run it up as the big boys exit for the holidays. Also still waiting on that 5 up.
If I'd have known the Spx rebalancing was going to reduce some big cap tech weightings I would have steered clear untill the close. My fault for being uninformed.
Went 200 long here at 1698.14
Stocks ain't cheap
By Mark Hulbert, MarketWatch
Last Update: 12:06 AM ET Dec. 9, 2005
ANNANDALE, Va. (MarketWatch) -- They're doing it again.
By "it," I mean that some advisers are playing fast and loose with the historical data to make it appear as though the stock market's price-earnings ratio isn't as above-average as it really is.
That in essence is the argument made by two hedge fund managers, Clifford Asness of AQR Capital Management, and Anne Casscells of Aetos Capital. In a working paper they wrote in 2004, they argued that many advisers are calculating the market's current P/E ratio one way and then comparing it to an historical average calculated in another way.
I wrote about their argument in January, and reported that, according to an honest apples-to-apples comparison, the market's P/E ratio then was between 46% and 50% higher than the historical average. Read archived column
What does their analysis suggest for today?
The good news is that the market isn't as overvalued today as it was a year ago. The bad news is that it still is significantly overvalued.
But I'm getting ahead of myself.
To understand Asness' and Casscells' argument, consider the following statement. It, or its functional equivalent, is repeated so often by investment newsletters and on Wall Street that we're likely to accept it as a legitimate argument, even though its reasoning is faulty.
The statement goes: "Based on analyst estimates for 2006, earnings on the S&P 500 next year are likely to total $X, which results in a P/E ratio of Y. That's right in line with that ratio's historical average of about 15."
Did you catch the sleight of hand inherent in it?
According to Asness and Casscells, the problem with this reasoning is that it compares a P/E ratio calculated using forward earnings with past P/E ratios calculated using trailing earnings. Since analysts invariably project earnings to grow, P/Es based on forward earnings will always be lower than those based on trailing earnings.
A legitimate historical comparison therefore requires comparing current and past P/Es that are all calculated using trailing earnings - or comparing today's with historical ratios when all are calculated based on forward earnings.
Consider first the ratio calculated using trailing earnings. For the trailing four quarters, according to Standard & Poor's, reported earnings per share for the S&P 500 have totaled $67, which results in a current P/E ratio of 18.7. Between 1871 and 2003, according to Asness and Cascells, the median of P/E ratios calculated in this way is 13.7.
Based on trailing earnings, therefore, the stock market's current P/E suggests that the market is 36% overvalued.
Consider next the ratio calculated using forward earnings. According to S&P, analysts are projecting total operating earnings per share for 2006 to be $88.59, which yields a P/E ratio of 14.2. The median of comparably-calculated P/E ratios for the 1871-2003 period is around 11, according to estimates from Asness and Casscells.
So according to this approach to calculating P/E ratios, the market is 29% overvalued.
As I hinted earlier in this column, the only good news implicit in these numbers is that they are not as bad as in January.
The problem with above-average P/E ratios is that they remove one of the strongest foundations that a bull market can otherwise have. That leaves the market particularly vulnerable to shifts in investor psychology.
That's just another way of saying that risk is above average in the market right now.
This doesn't mean that the market must go down. But it does mean that, at a minimum, the market is unlikely to provide high enough returns to adequately compensate investors for the risk they incur by being investing in stocks at current levels.
http://www.marketwatch.com/news/story.asp?dist=¶m=archive&siteid=mktw&guid=%7B23663E...
Gas has indeed doubled from last years weekly close of $7.04. Somebody biting the bullet at Columbia?
Stocks ain't cheap
By Mark Hulbert, MarketWatch
Last Update: 12:06 AM ET Dec. 9, 2005
ANNANDALE, Va. (MarketWatch) -- They're doing it again.
By "it," I mean that some advisers are playing fast and loose with the historical data to make it appear as though the stock market's price-earnings ratio isn't as above-average as it really is.
That in essence is the argument made by two hedge fund managers, Clifford Asness of AQR Capital Management, and Anne Casscells of Aetos Capital. In a working paper they wrote in 2004, they argued that many advisers are calculating the market's current P/E ratio one way and then comparing it to an historical average calculated in another way.
I wrote about their argument in January, and reported that, according to an honest apples-to-apples comparison, the market's P/E ratio then was between 46% and 50% higher than the historical average. Read archived column
What does their analysis suggest for today?
The good news is that the market isn't as overvalued today as it was a year ago. The bad news is that it still is significantly overvalued.
But I'm getting ahead of myself.
To understand Asness' and Casscells' argument, consider the following statement. It, or its functional equivalent, is repeated so often by investment newsletters and on Wall Street that we're likely to accept it as a legitimate argument, even though its reasoning is faulty.
The statement goes: "Based on analyst estimates for 2006, earnings on the S&P 500 next year are likely to total $X, which results in a P/E ratio of Y. That's right in line with that ratio's historical average of about 15."
Did you catch the sleight of hand inherent in it?
According to Asness and Casscells, the problem with this reasoning is that it compares a P/E ratio calculated using forward earnings with past P/E ratios calculated using trailing earnings. Since analysts invariably project earnings to grow, P/Es based on forward earnings will always be lower than those based on trailing earnings.
A legitimate historical comparison therefore requires comparing current and past P/Es that are all calculated using trailing earnings - or comparing today's with historical ratios when all are calculated based on forward earnings.
Consider first the ratio calculated using trailing earnings. For the trailing four quarters, according to Standard & Poor's, reported earnings per share for the S&P 500 have totaled $67, which results in a current P/E ratio of 18.7. Between 1871 and 2003, according to Asness and Cascells, the median of P/E ratios calculated in this way is 13.7.
Based on trailing earnings, therefore, the stock market's current P/E suggests that the market is 36% overvalued.
Consider next the ratio calculated using forward earnings. According to S&P, analysts are projecting total operating earnings per share for 2006 to be $88.59, which yields a P/E ratio of 14.2. The median of comparably-calculated P/E ratios for the 1871-2003 period is around 11, according to estimates from Asness and Casscells.
So according to this approach to calculating P/E ratios, the market is 29% overvalued.
As I hinted earlier in this column, the only good news implicit in these numbers is that they are not as bad as in January.
The problem with above-average P/E ratios is that they remove one of the strongest foundations that a bull market can otherwise have. That leaves the market particularly vulnerable to shifts in investor psychology.
That's just another way of saying that risk is above average in the market right now.
This doesn't mean that the market must go down. But it does mean that, at a minimum, the market is unlikely to provide high enough returns to adequately compensate investors for the risk they incur by being investing in stocks at current levels.
http://www.marketwatch.com/news/story.asp?dist=¶m=archive&siteid=mktw&guid=%7B23663E...
Missed inserting a link Frenchee. Good luck in the week ahead and Merry Christmas.
http://www.mrci.com/client/crb.asp
One more high above 1710 ought to do it and that would very much resemble the Dec. 04 high. As I put in another post, If the market wanted to screw the most it would make those holding for higher prices to dump into.....bagholders, here and now.
I've had 1734 which is the Dec. 02 top as a target for awhile. Cautious on longs as too many are looking for higher on seasonality and just waiting to sell after they "gimme just a little bit more".
I would buy the right dip though.
Glad I took those profits. I suspected a short covering rally which would be quickly reversed. I would guess this is the retest sequence for Oil/Nat gas and a longer lasting commodity entry is forthcoming. More, including components and weekly/monthly charts. Monthly is worrisome as it is in an area of long term resistence.
Very good looking weekly chart. 34EMA has contained selling in the $CRB.
And you would have been right too.
I'm Bullish on commodities, newly industrial China is sucking the bottom out of the barrel. Increasing demand with limited supply should continue indefinately.
And the dollar looks like it's going to pop higher too. Odd that the $USD and gold are rallying together, I missed that decoupling and it kept me out of the gold stocks.
Commodity fund was up 3.07% today. Took it off to cash in preparation for an index trade. At 100% cash.
Still in a corrective ABC flat 4th wave IMO. The C low is the one to buy for the 5th wave rally. Could come anytime but I conjecture that a flag is forming on the Spx with a low of 1243 to 1246. That's where I want to buy.
The conservative play would be to buy a breakout above. I won't be in today so tough to time it. For now, taking profit on the short during AM weakness.
Putting 20% short on Spx. Bulls have something to protect going into Fed.
Cot Chart.
Showing not much change in positioning, no help here.
A bit of negative d starting.
Rising tops on Ndx still not hit. Hammer candle on the weekly. I don't see how that line is not tested this month. When the top comes it may look a lot like last years.
Well, lower energy prices have helped this rally and higher ones could cause a flattening out of the rise (which may be happening now). It's all about investors trying to capture gains by Dec. 31 to save an otherwise lackluster year.
I think so.
Caught support at 50sma and lower trading band but still in a downtrend. Williams %R at an uncommon low level that signaled bottoms in the past.
They don't list the holdings but the correlation with oil is strong. Actually too strong, I'm doubting it's well diversified and will just use it as a short term play on oil.
RYMBX commodity fund at Rydex
Commodities.
http://www.mrci.com/client/crb.asp
Likely to be a choppy ride. Volatile components.
Switching from long Ndx to long $CRB 50%. I think Monday we head down if not today to finish the shakeout. Could take a week or two before the 5 up to 1734.
May be that a resurgance in energy prices will be the catalyst.
If you look at a daily 3 mo chart of S&P you see that countertrend wave 2 is almost identical to countertrend wave four.
Only problem is wave 2 and 4 are supposed to display alternation in price, time, or pattern.
I think we end up with a flat that takes us back down next 1 to 2 weeks, then blast up for the 5 second half of Dec.
Yesterday could be the B with C in the offing.
Been considering an entry but think I'll watch for now. At the bottom of that link is a monthly chart which looks like a double top with 1980.
Could do a substantial retracement before trying that top again.
Components.
http://www.mrci.com/client/crb.asp
Think this bull continues? Notice how the 34 EMA has been support.
I'm fairly confident that we're going to make a higher high in all the major indexes by the end of Dec.
The Ndx daily has not hit it's rising tops line yet. My maximum upside target is 1734 (Dec 02 high).
Switching to 50% long Ndx and 50% cash.
Here's a copy, there was no commentary attached.
Commentary: An inverted yield curve's all but inevitable
By Dr. Irwin Kellner, MarketWatch
Last Update: 7:03 AM ET Nov. 22, 2005
HEMPSTEAD, N.Y. (MarketWatch) -- Examining the shape of the yield curve today can tell us a lot about the shape of things tomorrow.
Any day now -- maybe even while you're reading this -- the yield curve will invert. Interest rates on the Treasury's two-year note will go above rates available on the benchmark 10-year issue.
This development can't be too far away. At last check, only six basis points (that is, six one-hundredths of a percentage point) separated the two from the ten. That's the narrowest spread since early 2001 -- just before the U.S. economy tumbled into its 10th postwar recession.
Normally, about three-quarters of a percentage point (74 basis points, to be exact) separates these two maturities. Two years ago, at its peak, this spread was a whopping 2.5 percentage points.
The yield curve could remain flat for a while, but it won't do so for long.
The Federal Reserve is widely expected to hike its federal funds rate, currently at 4.0%, by another quarter of a point when the policy-setting Federal Open Market Committee meets on Dec. 13, and a similarly sized increase is anticipated at the end of January. See our Economic Forecast page.
Unless the bond markets push rates on the long end up by at least 50 basis points over these next two months, the curve will invert. For long rates to jump this much, the rate of inflation excluding food and energy would suddenly have to surge, and/or foreigners would have to stop putting money into bonds and actually begin repatriating some of their current sizable investments.
In the absence of such developments, the curve will invert, sending out a number of messages -- each worth paying attention to.
First and foremost, by keeping long yields below short-term rates, the bond markets will be signaling that the Fed's tight money policy is choking off economic activity and that a recession is nigh.
In the past, every time short rates have gone above long yields, the economy has found itself in a recession. By the same token, every postwar recession has been preceded by an inverted yield curve.
Figuring out why this happens isn't rocket science.
When banks have to pay more for deposits (which key off short-term rates) than they can make lending these funds (which are based on longer rates), they tend to reduce this activity. In turn, this shrinks the money supply, thus starving the economy for liquidity.
Jeopardy for housing market
A recession brings with it good news and bad news.
On the good side, the decline in spending that constitutes a recession tends to keep inflation at bay by reducing demand for goods and services compared with supplies. Provided that the dollar doesn't rise in response to these higher short rates, a recession can also shrink our trade deficit by cutting our demand for imported goods.
The bad side, of course, is a loss of jobs and incomes, declining sales and profits, and a slumping stock market. Needless to say, the federal budget would be affected as well, as tax revenues decline while spending on social welfare programs rises.
Housing in particular would take it on the chin, since it requires lots of low-cost funds.
Come to think of it, this could very well be what the Fed wants. After all, outgoing Fed chief Alan Greenspan has been warning about froth in the housing market for some time, now.
http://www.marketwatch.com/news/story.asp?dist=ArchiveSplash,%20¶m=archive&siteid=mktw&a...
AAII Sentiment
AAII Sentiment
This post responds to the chart from last week for comparison.
Hussman. "Whipsaw" written all over it.
http://www.hussman.net/wmc/wmc051128.htm
Rydex. Had a few sector trades this year, the most successful was Precious Metals fund.
Rydex sector funds are unleveraged and don't follow any index. By not following an index I never know where the fund is intra day so I generally avoid these in favor of the Ndx/Spx funds.
Yes, probably not lower than 1650. Then 1734. Looks like short covering en masse. Straight up w/o pause. When the top is built I think it comes back down fast.
Sorry, I linked the Spx chart w/o noticing, but same thing... parabolic.
Do you have a price or time target yet for Nasdaq?
New Highs/New Lows still do not confirm the rally. The bullish contrarian view would be that the rally has plenty of room as these catch up fueling higher prices.
My take is narrowing participation. Many stocks taking it on the chin while the index movers make all look well.
I have little experience with bear markets but the one in 2000 was hallmarked by this same bifurcation.