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Using such "fundamental" indicators does leave something to be desired for
timing since overvaluations are relative and can last for a very very long
time. Looking at charts back to 1986 do suggest that significant
corrections do start in the summer and end in the fall. If memory serves
me correctly there usually is an intraday high that reaches an extreme
valuation and then its like a switch turns off the bull and its downhill
into September and October. Attached is a chart with some notation of
rallies and consolidations that tend to repeat each year with variations in
timing of course. So what is the mechanism that can end the summer rally
if it isn't valuations or interest rates. It might just be something in
the prospectuses of mutual funds that require an annual distribution of
dividends and capitalgains. Maybe the funds have to go on a portfolio
cleaning to raise cash for the 4th quarter event. They can issue new stock
or they pay for them with new money which takes away from stock purchases
or they sell stock or they borrow from their own cash funds or from banks.
Since the mkt has had a pretty good run and since mutual funds in general
have a rather high turnover rate of stocks, there must be some pretty hefty
distributions that need to be made this year. Anyone buying a fund should
inquire when the distribution date is and how much of an immediate tax
liabiltiy they are incurring. These kinds of things might just have an
impact that creates a "buyers" strike until the tax requirements are
fulfilled. The additional use of historical implied volatility and
volatility ratios adds a little more perspective to the environmental
conditions for summer topping and autumn bottoming.
BobR
At 12:59 PM 7/17/1999 -0700, Alexander Levitin wrote:
>Hi Bob:
>
>Thanks for the tip (the web site).
>
>I have a problem using such "fundamental" indicators. Let say we know that
>we are in danger zone. What should I do? Is today chart formation a top, a
>bottom, a continuation pattern? It could be any of it. So in that
>"fundamental indicators" are not helpful.
>
>They are not helpful in another situation. I am pondering a question are we
>in the new 4 year cycle: bull move for a few years, then decline, the usual
>routine. "Fundamental" indicators give me a clear "danger" signal as at the
>beginning of the previous 4 year cycle, and 4 years before, and before...
>What should I do?
>
>Where those "fundamental" indicators could be helpful (I suppose) that if I
>see a major top or bottom and "fundamentals" confirm or contradict the
>pattern. If they confirm to the better, if they contradict then I need an
>extra review.
>
>Alex.
>
>At 12:14 PM 7/17/99 -0700, Robert A. Roeske wrote:
>>If you want to check in on another study of the "risk" index check out
>>http://homepages.together.net/~wbarnes/stockmarket.htm. One argument
>> On a year over year comparison(252 trading days) it does look like
>>history is repeating itself at least pattern wise.
>>BobR
>>
>>At 02:30 PM 7/17/1999 -0400, Ronald McEwan wrote:
>>>I ran this off this morning. I wanted to see how we stand on earnings for
>>>the S&P 500 versus the yield on the 30 year bond. I simply subtracted the
>>>earnings yield from the 30 yr bond yield and plotted it against the close
>>>for the S&P. While this is obviously no great surprise, I thought it
>>>worth while to mention. My opinion, in light of the recent rate increase,
>>>is that while earnings have been the star performer they will not be able
>>>to sustain this level of growth. Of course the Fed could lower interest
>>>rates and then we will be off to the wild blue yonder.
>>
>>>Ron McEwan
>>>
>
>
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