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I believe that quarterly from 1974 is much too short a period for a super
cycle bear market. Attached log-scale SP500 chart displays channels forward
from the 1929 highs. While one would make a different set of assumptions
looking forward from 1974, this chart shows that it is reasonably probable
that: price will return to the yellow mid-channel line (currently 750+-)
rather soon and that price will eventually reach the thin blue line
(currently 350+- but more likely 400-500 in price/time).
In the olden days there was a guideline which said one never pays a PE
higher than the rate of earnings growth ... this is referred to as the PEG
(Price Earnings Growth) ratio. This rule worked very well until the mid-90's
when analysts and investors threw valuation measures out the window. I think
INTC is a great example of where we are ... a cyclical industrial technology
company which has long been held in high favor. If you go
http://biz.yahoo.com/z/a/i/intc.html and scroll down to the bottom row of
the Earnings Growth section, you will find a PEG of 1.9. If you divide the
closing price of 18.69 by 1.9 you find you would need a price of $9.82 to
achieve a PEG of 1.0. Since the rule says one should not pay _more_ than
this, $9.82 would be fully valued ... not a bargain price. Now try a few
others: MSFT = 1.85, GE = 1.20, MRK = 1.35, WMT = 1.64, and XOM = 2.42 ...
you can do the math on what kind of price haircut will bring the PEG to 1.0.
Of course this assumes that earnings do not continue to decline in coming
quarters ... analysts typically overestimate earnings until a bear market is
over. Finally, just as bull markets wildly overshoot on the upside, bear
markets wildly overshoot on the downside. In short, the most ardent
technician (and I include myself here) needs to keep one eye on a few
fundamentals to put things in perspective.
To summarize, traders should have a field day over the next several years
but it is far too early to be looking for a bear market bottom. One sentence
from a Kate Welling interview with Bob Prechter holds a place of honor in my
investment management notes: "When the P/E ratio falls to a lower low
despite the fact that stock prices bottom at a higher low than the previous
low, it is a signal that a long term uptrend is in place".
Earl
----- Original Message -----
From: "Clyde Lee" <clydelee@xxxxxxxxxx>
To: <MedianLine@xxxxxxxxxxxxxxx>
Cc: "Realtraders@xxxxxxxxxxxxxxx" <realtraders@xxxxxxxxxxxxxxx>;
"Swingmachine" <swingmachine@xxxxxxxxxxxxxxx>
Sent: Friday, July 19, 2002 10:23 PM
Subject: [SM] Re: [MedianLine] Log Chart:Quarterly SP500
First, I apologize to those of you who are members of more than one of the
three lists that I am posting this to.
This post is to try to put some real perspective of this "bear" to all prior
bears since (but not including) the 1929 fiasco.
As you will see, we are in a zone where it is really hard to estimate
whether
investor confidence will recover enough to turn around very soon or if we
are to be drug down to some of the further depths to which the market
has been subjected in prior years.
Later this weekend I will modify the SM program and only record down moves
that have lasted 4 to 8 months and post them on a chart similar to this so
we
can have some more ideas of what may happen very soon.
The interesting thing is that even if we are not at the bottom, two years
from
now we can expect to be somewhere in the range of 9,500 to 15,000.
If the latter figure is true (and a bunch of projections point in that
direction)
then we could have an increase to 200 % of present value of a portfolio if
we just bought the DOW stocks.
Kinda scary/amazing is it not ? ? ? ?
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
Clyde Lee Chairman/CEO (Home of SwingMachine)
SYTECH Corporation email: clydelee@xxxxxxxxxxxx
7910 Westglen, Suite 105 Office: (713) 783-9540
Houston, TX 77063 Fax: (713) 783-1092
Details at: www.theswingmachine.com
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
----- Original Message -----
From: John Wintels
To: MedianLine@xxxxxxxxxxxxxxx
Sent: Friday, July 19, 2002 8:58 PM
Subject: Re: [MedianLine] Log Chart:Quarterly SP500
Thank you for finally saying it! Please forward to O'Reilly, Imus, Peter
Jennings, The Today Show, Meet The Depressed, and the guy standing on the
ledge over there . . .
----- Original Message -----
From: Mr. Kevin Bantz
To: SPX_Swing_Trading@xxxxxxxxxxxxxxx
Sent: Friday, July 19, 2002 9:24 PM
Subject: [MedianLine] Log Chart:Quarterly SP500
Putting things into perspective, it doesn't look so bad...
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