No no no Hoop ..... Belg and the like need some cheering up
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I have written this post to cheer up Belg + others and you too Winner :):)
Apparently history has it that if you average the PE Ratio of the S&P500 during the other times of Low inflation/low interest environments LILI (as the USA is experiencing now) the reported PE Ratio figure comes out at 22.5.
Looking at Winners chart of the day post... the reported PE looks like about 17 and the close of S&P500 on Friday at 1110 gives an estimated reported profit of 1110/17 = $63.
Now we know that the 30th June reported profit was $64...so the chart of the day is accurate because we know that chart works off reported events at the time.
Now the question!!! ...Is the S&P 500 overvalued or undervalued??....research shows using history as a reference that during times of LILI the S&P500's PE Ratio is averaging 22.5........
.....so using the theorical calculations EPS x PE = Index... we get 64 x 22.5 = 1440
Therefore my valuation of S&P500 for this present LILI environment is 1440 therefore at 1110 the S&P500 is significantly undervalued.
Interesting to note...is that there are variables at work...contrary to belief.. high inflation or high deflation and interest rates are high or negative respectively pulls down the values of the PE Ratio to below 10 and during the height of the equity market boom times the LILI environment usually operates in raising the values of PE ratios to above 20. If you don't believe me don't recite the media to me..go study up the facts and figures....actually look at Winner 69 chart of the day during the mid 1970's to mid 1980's when high Inflation and high interest rates existed HIHI... the PE Ratio then was around the 10 mark or less for a decade.
Having just had a GFC the investor uncertainty and shyness towards equities is very noticeable and probably the reason why the S&P500 is so undervalued.
Will the S&P500 correct to its valued figure of 1440? ...perhaps.. even with stagnant zero growth and continued LILI going into 2011 the S&P500 index value will still be 1440 because nothing has changed.
However if company profit growth returns and the FED bumps up the interest rate to control inflation it is possible there could be no increase in the S&P500 index valuation (the paradox) but the investors may feel better and start buying in and push up the S&P500 to a point that it is fully valued or overvalued..
If say (hypothetically) that next year investors push the S&P500 from todays 1110 to 1440 because they are very confident with the post recovery big increases in company profit growth from say (hypothetically) todays $64 to $90... that scenario would see the reported PE ratio fall lower than now (paradox).... 1440 / 90 = reported PE Ratio 16...however, depending on the extent of the switch from a LILI to a HIHI environment, the 1440 in the post recovery next year at a PE ratio of 16 may be fully valued or overvalued. That overvaluation occurs because in a HIHI environment the average PE ratio is around 10 or less
The paradox is that the S&P500 may be fairly valued at 1440 now under stagnant ecomonic conditions but next year in much better times that 1440 may then be considered overvalued.
You can see now how the layman and especially the media would not understand how this could be possible.
...the SPX 500 trades now above the 200-day MA *1115 but price action remains unimpulsive so far just below the *1130 mark
...as a result the index remains vulnerable to a brief shake-out move from overhead resistance *1130 down to affirm 3-month trendline support *1093, possibly reaching lower intraday into the *1080 area
...a successful defense will motivate the market to challenge the August Peak *1129 with potential to head higher towards the *1140 mark
...failure at the *1140 level or failing *1075 would throw the index back towards a negative bias with the July Low *1011 at stake and potential to break through the *1000 Psych down into the *900 area
Kind Regards
...the SPX 500 continues to grind higher but remains vulnerable to a corrective shake-out below the August Peak *1129 as price action has been unable to keep up with short term upward momentum
...although the market could drive the index into the *1129/*1140 zone intraday severly overbought momentum would impair the index to reach higher towards the projected longer term targets current *1169 and *1221 respectively
...support points for a successful execution of a brief set-back would be:
-the 200-day MA current *1115
-1-month support current *1103
-3-month trendline support *1093
...more downside into the *1080 level at this stage would already demonstrate weakness and a potential early return to negative sentiment
Kind Regards
www.stocktiming.com: -data point 15 September 2009-
...Institutional Core Holding http://i51.tinypic.com/wjguns.jpg advance showing weakness with C-RSI below 5 (translates into historically high failure rates)
Trader Update -data point 15 September 2010:
...the SPX 500 recovered from early weakness but trading remains uncomitted below the August Peak *1129
...although on the NYSE, the DVOL made a new Low which opens up the possibility for the VIX to move below its Support the VIX is building a positive divergence ahead of Fridays option expiration
...as a result, a brief shake-out move down to the remaining two support points:
-1-month support current *1103
-3-month trendline support *1093
would not come as a surprise
...a successful defense in the support range would motivate the market to drive the index higher towards *1164 as the next upside target
...institutional selling http://i55.tinypic.com/2ym9dae.jpg downtrend but the NYA algorithm is at an extreme high level
Long Term: http://i26.tinypic.com/s68395.jpg
Kind Regards
Trader Update -data point 16 September 2010:
…the SPX 500 closed unchanged *1125 after drifting sideways to lower for the day unable to surpass the September 14 High *1127 or the August Peak *1129 -again for the third day in a row-
...the fact that the index keeps on banging its head against overhead resistance *1130 with no apparent headway suggests the risk of a shake-out move remains high, the view clearly supported by negative divergent market internals
as a matter of fact, this whole price action has the definite look of the two failed rallies during June and July
-be on the ALERT for bulltraps sucking in buyers into a 'long awaited' break-out- and short if aggressive enough
...support points for a brief shake-out:
in the *1108/*1094/*1083 level
...a successful defense in the support level would motivate the market to reach out to *1169 as the next upside target
Kind Regards
Agree..
Most of the global equity markets have now pushed their indexes through primary resistances to resume their Bull market trends. US equity markets have been the laggards since the early 2009 bottom ..the time to resume their bull trend must be getting closer now.
...historic data on SPX 500 performance during the next 1_2_3_4_5 trading sessions following September 'Triple Witching' option expiration
...consequently a 'long trade' following option expiration is historically against the odds
Kind Regards
All the more reason to be bullish...
Triple witching week for options expirations starts in the 3rd week of every quarter (March June Sept December) so the first trading day was last Monday... today is session 4
It seems the S&P500 is going against the historic odds with 1 session to go ....
Hoop,
...Friday September 17 will be ‘Triple Witching‘ (stock index futures, stock index options and stock options all expire on the 3rd Friday of March, June, September and December of every year)
...the table shows Septembers historical option expiration dates (‘Trigger Date‘ since 1990) and the SPY‘s (S&P 500 SPDR.) respective performance over the course of the then following 1 , 2 , 3 , 4 and 5 sessions, assumed one went long on close of September’s triple witching session in the past (like this time on close of Friday, September 17)
Kind Regards