MORE NORMAL EARNINGS PICTURE
by Carl Swenlin
April 1, 2010
S&P has still not finalized 2009 Q4 earnings, but 99% of companies have reported, and I want to get the most current earnings picture out there, so I have updated our database to TMT earnings as of Q4 2009. This causes the horrible Q4 2008 numbers to drop out of the equation and gives us a more realistic look at valuations.
The chart below shows the S&P 500 in relation to its normal P/E range (10 to 20). The colored arrows on the right help to clarify where the cardinal points of the range are now located.
While the picture has improved considerably from a year ago, the S&P 500 is still above the overvalue limit with a P/E of 23. By the end of the year (see below), earnings are expected to improve, but still not enough to get valuations anywhere near fair value (15). If prices continue to advance, the market will remain extremely overvalued.
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We rely on our mechanical trend models to determine our market posture. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. Note that we have included the nine Rydex Equal Weight ETF versions of the S&P Spider Sectors. This may seem redundant, but the equal weighted indexes most often do not perform the same as their cap-weighted counterparts, and they provide a way to diversify exposure. Daily tracking of these signals is available to subscribers in the Decision Point Alert Daily Report.
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Technical analysis is a windsock, not a crystal ball.
© 2010 Carl Swenlin