AI
Monday, April 03, 2023 10:48:51 AM
Hi Toof, Re: Value LIne Price Earnings value....................
They calculate the median of all stocks "with earnings."
I like the Value Line P/E in that their database is of ~1700 stocks instead of the S&P500 or Dow 30.
As we head toward expected poorer earnings with the inflation and higher interest rates, there will be a difference in how many companies are included each week. I don't have access to that info, however. Some companies will experience reduced positive earnings and some will report losses. Of course, some will show improved earnings, too.
I find it informative that 26 weeks ago the median P/E was 14.4, at the market low of 3/23/2020 it was 11.0 and at the 2022 market high it showed 19.3. Part of the reason Ms Garzarelli's index is so good is it doesn't depend just on P/E but the combination of "risk free rate of return" plus Price to Earnings. In her study (and mine) she showed that a neutral risk market was "20" with 18 and below being bullish and 22 and above being bearish. Now, that "20" could be a combination of a P/E of 19.5 plus 0.5% interest. Or, it could be a P/E of 10 and interest rates of 10.
Most people only look at the P/E and could be fooled by a 10 P/E and think it's bullish or 19.5 and think it is bearish. Only with the combination does one see that the 10 or 19.5 P/Es are just neutral in my example above.
When I put in the CPI inflation rate as a potential substitute for interest rates the Relative Valuation Index corrected itself from the mischief of the Federal Reserve Bank's manipulations. The spreadsheet uses the larger of either the 13 Week Treasury or the CPI inflation value. The result shows RV has been in its Caution zone almost continuously since the start of 2021.
But, my Market Risk Indicator isn't dependent upon just the RV. There are the other three risk components included in the MRI. Of those, two are neutral and one is bullish. The bullish one helps cancel the bearish one and the other two are adrift in the sea of doldrums. Overall, my Market Risk Indicator is currently on the higher end of its neutral range.
Thanks for the question,
OAG Tom
They calculate the median of all stocks "with earnings."
I like the Value Line P/E in that their database is of ~1700 stocks instead of the S&P500 or Dow 30.
As we head toward expected poorer earnings with the inflation and higher interest rates, there will be a difference in how many companies are included each week. I don't have access to that info, however. Some companies will experience reduced positive earnings and some will report losses. Of course, some will show improved earnings, too.
I find it informative that 26 weeks ago the median P/E was 14.4, at the market low of 3/23/2020 it was 11.0 and at the 2022 market high it showed 19.3. Part of the reason Ms Garzarelli's index is so good is it doesn't depend just on P/E but the combination of "risk free rate of return" plus Price to Earnings. In her study (and mine) she showed that a neutral risk market was "20" with 18 and below being bullish and 22 and above being bearish. Now, that "20" could be a combination of a P/E of 19.5 plus 0.5% interest. Or, it could be a P/E of 10 and interest rates of 10.
Most people only look at the P/E and could be fooled by a 10 P/E and think it's bullish or 19.5 and think it is bearish. Only with the combination does one see that the 10 or 19.5 P/Es are just neutral in my example above.
When I put in the CPI inflation rate as a potential substitute for interest rates the Relative Valuation Index corrected itself from the mischief of the Federal Reserve Bank's manipulations. The spreadsheet uses the larger of either the 13 Week Treasury or the CPI inflation value. The result shows RV has been in its Caution zone almost continuously since the start of 2021.
But, my Market Risk Indicator isn't dependent upon just the RV. There are the other three risk components included in the MRI. Of those, two are neutral and one is bullish. The bullish one helps cancel the bearish one and the other two are adrift in the sea of doldrums. Overall, my Market Risk Indicator is currently on the higher end of its neutral range.
Thanks for the question,
OAG Tom
Buy from the Scared; Sell to the Greedy.....
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