Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

Stock Market S&P 500 Bearish Black Cross Lurking?

Stock-Markets / Stocks Bear Market Feb 17, 2010 - 06:51 AM GMT

By: Andrew_Butter

Stock-Markets

Best Financial Markets Analysis ArticleMy view on the S&P 500 is that right now it is 28% undervalued but it will keep on being undervalued until all of the detritus from the past seven years of fiscal insanity get’s cleared out. So basically it’s going to drift sideways for quite a long time with it’s value determined roughly by the ratio of nominal GDP divided by the yield of the 30 Year Treasury.


So when I saw a piece on Minyanville about Black Crosses, specifically that the juxtaposition of the 200 Day Moving average and the 50 Day Moving average, it got my attention.

I admit that my I am rather suspicious of many of the rules of thumb about reading the tea-leaves on stock markets, much of which looks like so much mumbo jumbo to me, but anyway the idea is when the 50 Day Moving Average (going down)  crosses over the 200 Day Moving Average (going up), that’s the signal there is going to be a humdinger of a bust.

Mmm…I had a look, checked out the S&P 500 and the SSE, seemed to work OK although it’s a bit of a lagging indicator so by the time one hits you are selling on a really fast falling market; so it’s presumably a good idea to keep an eye on the road ahead. This is what it looks like:

Anyway, that was their story, which is that one’s coming!!

SO WATCH OUT!!!

 

I dunno…I’m not an expert but it didn’t look like there is one imminent right now on the S&P 500.

My take on the S&P is somewhat unusual in that I look at a valuation done using International Valuation Standards and compare that to the price, historically there is a pattern where the disconnect between what IVS calls “Other Than Market Value” (that’s what the price “ought to be” if there wasn’t what they (and George Soros) call disequilibrium, goes in waves.

This is a chart on that I put out in May 2008:

Looking back I notice I changed my mind a bit since then about where the “fundamental” is but anyway just for illustration.

My point then, and still is, that historically at least, it looks like  you tend not to get a big reversal when the market is under-priced which is what happens after a bubble, unless the price drifts up to above about 15% to 20% (max) undervalued (now it’s about 28% according to me).

So perhaps I’m blind, but I don’t see any great excitement coming up in the immediate future, at least until the S&P gets to about 1,200 to 1,300, if it does that there would be a risk of a 10% to 15% (max) reversal.

One caveat is if nominal GDP starts to go seriously negative, which I doubt because although I can believe the Fed isn’t that good on generating real GDP growth, in the event they will be able to make up for that by creating inflation which is their speciality (not that they have managed to create much recently but you can tell they are itching to do that).

The big danger would be a rise in the 30 Year Treasury yield, which in my view is pretty unlikely that it’s going to go up much (I’m in a minority on that too),  but if I’m wrong on that then that would drive the “fundamental” down in which case the danger of a reversal would increase.

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe; currently writing a book about BubbleOmics. Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( hbutter@eim.ae ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

© 2010 Copyright Andrew Butter- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Andrew Butter Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules