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I the pattern/price/time work to which others have alluded indicating that
mid-May may see the end of the bull market. The S&P TBill/Earnings Yield
ratio model confirms this as the ratio has again hit a historical high as
rising interest rates lessen the value of earnings while price levels are
continuing to hold. We are also in a seasonally weak period for the high
flying tech stocks (sell in April and buy in June). This makes for an
exceedingly dangerous market where the downside risks far outweigh the
rewards, especially for the S&P.
However, we are seeing an interesting dichotomy. The attached chart of the
NYSE weekly breadth statistics (based on weekly advances, declines, highs,
lows as reported in Barron's) shows a market which is showing signs more
suggestive of an important bottom than a top. While not as clear, the NASDAQ
weekly breadth statistics are beginning to show a similar pattern. Assuming
that interest rates do not move radically higher in the near term, we may
see the S&P move grudgingly up/down into the 1550-1600 area while the broad
market indices advance smartly. Once the remainder of the market is as
over-valued as is the S&P (perhaps by fall) there will be no place left in
which to stuff cash.
The important thing to keep in mind is that when assets become overly
popular (e.g. techs, oil stocks, US$) one should begin taking money off the
table and putting the money into assets which are overly unpopular (e.g not
much left but some commodities have been beaten to hell). When everything is
popular, the game is up.
Earl
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