Best of the Week
Most Popular
1.Bitcoin War Begins – Bitcoin Cash Rises 50% While Bitcoin Drops $1,000 In 24 Hours - Jeff_Berwick
2.Fragile Stock Market Bull in a China Shop -James_Quinn
3.Sheffield Leafy Suburbs Tree Felling's Triggering House Prices CRASH! - Nadeem_Walayat
4.Bank of England Hikes UK Interest Rates 100%, Reversing BREXIT PANIC Cut! - Nadeem_Walayat
5.Government Finances and Gold - Cautionary Tale told in Four Charts - Michael_J_Kosares
6.Gold Stocks Winter Rally - Zeal_LLC
7.The Stock Market- From Here to Infinity? - Plunger
8.Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - MarketsToday
9.Electronic Gold: The Deep State’s Corrupt Threat to Human Prosperity and Freedom - Stewart_Dougherty
10.Finally, The Fall Of The House Of Saud - Jim_Willie_CB
Last 7 days
Best Time / Month to Buy a Used Car From a UK Dealer - 16th Dec 17
Relief Rally in Gold Mining Stocks - 16th Dec 17
Amid Bad Fundamentals, Gold Sector Rally May Have Begun - 16th Dec 17
Gold Bullish on US Fed Interest Rate Hike - 16th Dec 17
The LORAX Explains What Happened to Sheffield's Street Trees 2017 - 16th Dec 17
Bitcoin Trading Alert: Bitcoin Pauses – Will Appreciation Follow? - 16th Dec 17
SanDisk Ultra 128gb 100mbs Micro SD Card for Smartphone's Speed Test - 15th Dec 17
Inflation is Spiking Globally… Bond Bubble Bursts in 3… 2… - 15th Dec 17
Sheffield's 'Real' LORAX Defending the Trees From the Labour City Council Patrol Units - 15th Dec 17
Stock Market Decline Signals are Near - 15th Dec 17
Santa Is Putting Christmas On The Blockchain And Saving Billions - 14th Dec 17
The Unprotected, the Protected, the Vulnerably Protected Classes—Which Are You? - 14th Dec 17
Gold’s Upside Target - 14th Dec 17
Year-end US Interest Rate Hike Again Proves To Be Launchpad For Gold Price - 14th Dec 17
2 Charts That Might Define the Fed’s Jerome Powell Era - 13th Dec 17
UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - 13th Dec 17
Stock Market Elliott Wave Forecasts - Is the World coming to the end? - 13th Dec 17
A Method Traders Can Use to Confirm an Elliott Wave Count - 13th Dec 17
Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - 13th Dec 17
A Former Wall Street Veteran: Good Traders Are Born, Not Trained - 12th Dec 17
Buy Gold, Silver Time After Speculators Reduce Longs and Banks Reduce Shorts to Continue? - 12th Dec 17
Masters of Economic and Political Illusion – in Taxes, Debt, Government, and Markets - 12th Dec 17
Approved Used Land Rover Main Dealer Real Customer Buying Guide - Hunters, Chester - 12th Dec 17
Gold Price 100% Bullish Signal - 12th Dec 17
Epic Stock Market & Fixed Income Bubble Will Not End Well - 12th Dec 17
Bitcoin can be stolen. Although Can’t be hacked - 11th Dec 17
Have Stocks Reached A Permanently Rigged Plateau? - 11th Dec 17
Trying To Beat The System Is A Fatally Flawed Investment Strategy - 11th Dec 17
Is This The Beginning Of The Next Silver Rush? - 11th Dec 17
The Dow Gold Ratio - 11th Dec 17
Evidence of a Stock Market Top Mounting - 10th Dec 17
Bitcoin Doesn’t Exist – Forks and Mad Max - 10th Dec 17

Market Oracle FREE Newsletter

Traders Workshop

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

© 2005-2018 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

Catching a Falling Financial Knife