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Investment Analysis Clubs / Macro Economic Trends and Risks
|Subject: Control Panel: Oversold?||Date: 11/19/2012 2:20 AM|
|Author: WendyBG||Number: 408909 of 501122|
I posted a short Control Panel on Friday morning.
I concluded that the SPX was a falling knife that had further to fall.
Brian (sitkapacific) concurred and posted a chart.
jgc123 wrote, "For a possible contraindicator to your indicators, the vanguard utility index, vpu, just bounced off of its 200 day average like it did in August of 2011."
Brucedoe wrote, "I expect this to continue until a solution to the "fiscal cliff" becomes apparent."
qazulight wrote a post analyzing the technical patterns (head and shoulders) and said, "All I am looking for is a nice bump to enter some more short positions."
The reason I post the Control Panel weekly (not daily) is to focus on signal, not noise. To bring out the signal even more, here is the 40-year chart of the SPX (courtesy of Dr. Mike Klein). The Y axis is logarithmic, so exponential growth shows as a straight line.
As all METARs know, the SPX bull market started in 1982, after Fed Chairman Paul Volcker raised Treasury yields and broke the back of inflation during the 1980-82 recession. The chart shows this clearly.
The big drops are the bursting of the tech stock bubble in 2000 with the bottom set in March 2003 and the 2008 financial crisis with the bottom set in March 2009. After that, the SPX had diminishing setbacks in 2010, 2011 and 2012 due to the European debt crisis that was aggressively handled by the troika in Europe.
Seen on this long-term chart logarithmic, the current market drop is minor.
Over the past 4 years, the entire stock market has been stalked by the fear of crisis and extreme drawdowns.
If only we could get back to "ordinary" times (non-crisis), we could talk about the natural business cycle and whether the U.S. is entering another recession that would cause a normal (nasty but not crisis) short-lived bear market, like 1980-82 or 1987 or 1990 but not a bubble pop like 1974-75 (popping of cheap energy bubble) or 2000 (popping of tech bubble) or 2008 (popping of real estate debt bubble).
Currently, Corporate Profits After Tax is at an all-time high. The S&P 500 P/E Ratio is close to the long-term average, which is reasonable if corporate profits remain at this leve