Abri este tópico para não se perderem ou ficarem analises e comentários demasiado prensados debaixo de outros comentários e perdidos no tempo.
We can see the market tops of 2000 and 2007, along with this year’s peak that most likely marked another top. Notice the lower MACD indicator, which generated pretty clear sell signals just after those two market tops. In both cases, these tops and sell signals led to major declines in stock prices. And as you can see, the current situation looks eerily like that of 2000 and 2007.
But back to the overvaluation concern. We have written for years that stocks are overvalued. In fact, my first ever column here dealt with this very issue, back in February of 2013. Stocks are selling too far above their book values; stock dividends provide much lower yields than they should; and stocks are selling at very high P/E ratios. These are the traditional measures of a stock market that is cheap or dear, and by all of these, stocks have been over-priced for several years.
Well then, how do we know that Davis’ analysis (reported by Mark Hulbert on marketwatch.com ), isn’t merely another example of “crying wolf” about an allegedly overvalued market? We can’t know for sure, but this time there is something different. Instead of looking at conventional price/sales and price/earnings numbers, this time Davis is considering median stock’s price/earnings and price/sales ratios. By focusing on the median, where half of all the other companies have higher ratios and the other half have lower ratios, this analysis avoids flaws found in the traditional measures.
Just to add one more thing to worry about, junk bonds have been acting poorly lately. According to FactSet, some key junk bond prices are their lowest since the Great Recession year of 2009, and limits are being put on investors cashing out of at least one junk bond fund. This could be important, as junk bonds are especially sensitive to business slowdowns.
And as this chart from FactSet shows, their prices have been helpful in identifying stock market weakness before it really kicks in. The past year or so of higher stock prices and lower junk prices is just the kind of thing that preceded big stock market declines in the last 15 years. Naturally, others question the reliability of this relationship and warn against reading too much into this market's action. But taken in context of what else is going on, I don't think we should ignore the junk bond market's weakness.
Let’s recap a bit. The last clear message we got from the Dow Theory was a Bearish one. Our Primary Trend Indicator (PTI) is neutral. We have what looks like a long-term top in place in the S&P 500. In terms of market valuations, the case has just been made that stocks are more over-priced today than at any time in at least the last 15 years. And junk bonds are ringing their warning bell too. All in all, we therefore ought to view the stock market cautiously, and not be too surprised by the kind of nasty downside action we saw last week.
