S&P Has Gone Parabolic (Has Busted Everytime in History Afterwards): Chart of the Day

Discussion in 'Trading' started by ByLoSellHi, Oct 8, 2009.

  1. For those of you who would shout "au contraire!!" and are excited about the stock markets gains since the spring, please take a look at the following chart. Note that maximums in the P/E (price-to-earnings) ratio often precede market crashes, as the stock is overvalued as compared to its dividends/earnings. This S&P 500 chart is from 1935-present.


    Notice anything strange? We are way out of historical means. I do not believe that such absurdly high P/E ratios are possible to maintain over the long-term.

    And note that the Dow Jones Industrial Average would be far worse if AIG, Citicorp, and General Motors were not removed from this index in the past year...

  2. sub0


    I've already seen those charts, when will the other shoe fall? I still feel like there needs to be something to trigger it. I almost feel like big institutional traders are not shorting/selling for some reason. Volume is below average on most stocks, so everything is drifing up on the lightest volume. Seems like the opportunity of a life time and I don't understand what big money is waiting for. Something seems really strange.
  3. Going by poor memory, the Japanese had PE's like this and stayed up when the rest of the world crashed in '87. The Japanese said they had developed a new economic paradigm that was far in advance of western economics and was crash proof.

    Indeed for several years they experienced a bull market and then it tanked. Turned out it was highly manipulated by the government until the coffers ran dry and resulted in successive leaders resigning in disgrace, which is a very big deal in Asia.

    Anyway, don't be too quick to call time as history shows these PE levels can be sustained for quite some time, but when it cracks, boy does it tank hard and long.
  4. jjj1000


    Yeah, I am very aware of the astronomical p/e. In my opinion, it is the government (maybe not directly but via Goldman, etc) that "has made" the market go up and stay up like that... even though there's plenty of reason to have a good 20% correction.
  5. au contraire!
    Yeah, I need to start learnin' French if I'm goin' to be taking advantage of my time whenever I'm in Quebec.
  6. achilles28


    Isn't the Bull argument future earnings expectations, instead of current?

    Big earnings could save the day, right? Normalize PE's?

    Does it then follow, the longer earnings stay poor, the more obvious distorted PE's become, and thus, the more likely a crash?

    Although, Zimbabwe saw great PE's while demand was cannibalized through inflation...

  7. they always said you can get numbers to pretty much say anything you want to,

    just shrink the chart to 5 yr intervals and see the change from previous decades all on one chart and then draw a conclusion that doesn't even amount to the width of one pixel on that chart.


    statistics don't lie
    statisticians do....
  8. the1


    I'm too lazy to do the math but wouldn't earnings have to more than double to bring valuations back into a reasonable range?

  9. S2007S


    This entire market rally is being driven to the upside with liquidity, the new asset bubbles are here right now and growing.
  10. not to long ago,

    Singapore (evidently either their soverign wealth account or some other facet of the Gov't) sold their C (Citibank, NA) stake for a net profit,

    reportedly of $1.600,000,000.00 (i.e. $1.6 billion)

    whooppee for they,

    so much for a bottomingout phase, as well as a recovery?

    so, when we look for the economic numbers to justify what we're bouncing up on, then the strings become much more evident.

    don't they

    hope they hold long enough to make it to solid ground....
    #10     Oct 8, 2009