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Sunday, July 19, 2009 9:57:32 PM
Amateur Investors Weekend Stock Market Analysis (7/18/09)
http://www.amateur-investor.net/Weekend_Market_Analysis_July_18_09.htm
I thought this week I would revisit the data done by Robert Shiller who is an Economics Professor at Yale University. The chart below is a comparison of the long term PE Ratio versus an Inflation Adjusted S&P Composite going back to the mid 1890’s.
As you can see historically significant Cyclical Bear Market Bottoms haven’t occurred until the PE Ratio has dropped back to or below a reading of 7.0 (points A) as denoted by the green line. This was the case in 1920, 1932 and more recently in 1982. So far the lowest PE Ratio based on Shiller's data has been around 13 which is still far above the 7.0 level that has led to historical bottoms in the past. Meanwhile the current chart of the S&P Composite looks similar to that of the Cyclical Bear Markets from 1905-1920 and 1966-1982 which were drawn out affairs that lasted from 15 to 16 years before the Inflation Adjusted S&P Composite made a Cyclical Bear Market bottom. Based on this data the most recent Cyclical Bear Market likely started in 2000 and not 2007 when you use the Inflation Adjusted data. Furthermore if this current Cyclical Bear Market follows the 1905-1920 and 1966-1982 time periods then this Cyclical Bear Market could last another 6 to 7 years if history were to repeat itself as each Economic Cycle goes through their Bearish and Bullish phases.
Next if we add some longer term trend lines (black lines) to the Log chart of the Inflation Adjusted S&P Composite notice the longer term channel has been to the upside despite all of the market volatility during the past 114 years. Also it wouldn’t be too surprising if the Inflation Adjusted S&P Composite, at some point in the future, eventually tests the bottom of its longer term upward channel before the current Cyclical Bear Market bottoms.
Now if we display the Inflation Adjusted S&P Composite on a Linear Scale instead of a Log Scale and add the longer term upward trend line (black line) and extend it out in time it appears support would eventually be somewhere in the 350 to 400 range. Meanwhile also notice the 1966 to 1982 time period looks similar to that from 2000 through 2008, albeit on a smaller scale, as it went through an ABC affair which was then followed by a decent oversold rally (points C to D) which could be similar to what we are seeing now with the latest rally from the early March low. Furthermore after the decent oversold rally ended back in the mid 1970’s this was then followed by a gradual downtrend until the bottom occurred in 1982 (points D to E). Thus we shall see if this is what eventually evolves in the longer term after this latest oversold rally eventually peaks.
Finally after each Cyclical Bear Market bottom this was followed by a Cyclical Bull Market such as from 1921-1929, 1943-1965 and more recently from 1983-1999. So once this current Cyclical Bear Market does end, based on historical patterns, this should eventually be followed by another substantial Cyclical Bull Market.
In 2008 our ETF Strategies worked the best with which had a return of +33% versus the S&P 500 which was down -38.5% for the year.
Meanwhile our 401K Strategy finished up +17.3% for the year.
Signup for a "Free 4 Week Trial Membership" or save up to 50% on a Premium Membership and you will have access to these Investment Products which include the following:
1. "ETF Daily Buy and Short Signals" which can be used to trade the DIA's, QQQQ's, SPY's and OIH's. Our ETF Strategy returned 33% in 2008.
2. "401K/Thrift Savings Plan (TSP) Timing Service" which can be used to help improve your return in your 401k/TSP Account which was up +17.3% in 2008.
3. The "End of Month Strategy" finished up +36.3% in 2008. This Strategy focuses on the typical End of Month markup by the Institutional Money.
4. "Stocks to Buy List" which can be used with either our Short Term Strategy or Long Term Strategy. In 2007 our Long Term Strategy finished even for the year versus the S&P 500 which was down -38.5%.
Our Summer Membership Special for new Members is shown below
which are 50% Off our normal Monthly Rate of $39.95
http://www.amateur-investor.net/Weekend_Market_Analysis_July_18_09.htm
I thought this week I would revisit the data done by Robert Shiller who is an Economics Professor at Yale University. The chart below is a comparison of the long term PE Ratio versus an Inflation Adjusted S&P Composite going back to the mid 1890’s.
As you can see historically significant Cyclical Bear Market Bottoms haven’t occurred until the PE Ratio has dropped back to or below a reading of 7.0 (points A) as denoted by the green line. This was the case in 1920, 1932 and more recently in 1982. So far the lowest PE Ratio based on Shiller's data has been around 13 which is still far above the 7.0 level that has led to historical bottoms in the past. Meanwhile the current chart of the S&P Composite looks similar to that of the Cyclical Bear Markets from 1905-1920 and 1966-1982 which were drawn out affairs that lasted from 15 to 16 years before the Inflation Adjusted S&P Composite made a Cyclical Bear Market bottom. Based on this data the most recent Cyclical Bear Market likely started in 2000 and not 2007 when you use the Inflation Adjusted data. Furthermore if this current Cyclical Bear Market follows the 1905-1920 and 1966-1982 time periods then this Cyclical Bear Market could last another 6 to 7 years if history were to repeat itself as each Economic Cycle goes through their Bearish and Bullish phases.
Next if we add some longer term trend lines (black lines) to the Log chart of the Inflation Adjusted S&P Composite notice the longer term channel has been to the upside despite all of the market volatility during the past 114 years. Also it wouldn’t be too surprising if the Inflation Adjusted S&P Composite, at some point in the future, eventually tests the bottom of its longer term upward channel before the current Cyclical Bear Market bottoms.
Now if we display the Inflation Adjusted S&P Composite on a Linear Scale instead of a Log Scale and add the longer term upward trend line (black line) and extend it out in time it appears support would eventually be somewhere in the 350 to 400 range. Meanwhile also notice the 1966 to 1982 time period looks similar to that from 2000 through 2008, albeit on a smaller scale, as it went through an ABC affair which was then followed by a decent oversold rally (points C to D) which could be similar to what we are seeing now with the latest rally from the early March low. Furthermore after the decent oversold rally ended back in the mid 1970’s this was then followed by a gradual downtrend until the bottom occurred in 1982 (points D to E). Thus we shall see if this is what eventually evolves in the longer term after this latest oversold rally eventually peaks.
Finally after each Cyclical Bear Market bottom this was followed by a Cyclical Bull Market such as from 1921-1929, 1943-1965 and more recently from 1983-1999. So once this current Cyclical Bear Market does end, based on historical patterns, this should eventually be followed by another substantial Cyclical Bull Market.
In 2008 our ETF Strategies worked the best with which had a return of +33% versus the S&P 500 which was down -38.5% for the year.
Meanwhile our 401K Strategy finished up +17.3% for the year.
Signup for a "Free 4 Week Trial Membership" or save up to 50% on a Premium Membership and you will have access to these Investment Products which include the following:
1. "ETF Daily Buy and Short Signals" which can be used to trade the DIA's, QQQQ's, SPY's and OIH's. Our ETF Strategy returned 33% in 2008.
2. "401K/Thrift Savings Plan (TSP) Timing Service" which can be used to help improve your return in your 401k/TSP Account which was up +17.3% in 2008.
3. The "End of Month Strategy" finished up +36.3% in 2008. This Strategy focuses on the typical End of Month markup by the Institutional Money.
4. "Stocks to Buy List" which can be used with either our Short Term Strategy or Long Term Strategy. In 2007 our Long Term Strategy finished even for the year versus the S&P 500 which was down -38.5%.
Our Summer Membership Special for new Members is shown below
which are 50% Off our normal Monthly Rate of $39.95
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