Monday, March 9, 2009

Historic Chart

I found this on my hard drive the other day, and I thought I would share it. If you go to the site mentioned on the image, you'll find an even more recent chart showing the current decline of the S&P500 P/E ratios (not yet below 10).

This chart will hopefully give you an idea of where the current market stands. There have been "double tops" before that have not signaled the end of the market, something pointed out every now and then by the doomsayers. Also, there are other times where we have dipped below the outlined consolidation levels. While the chance for a Great Depression like dive exists, I personally think we'll get some movement towards the upside as soon as P/E ratios dip below 10. According to the data I find at Shiller's website, the S&P500 P/E ratio is about 12 as of March 3, 2009. In order to get real bullish sentiment, I think we'd need to fall to ~7 or so. We could fall lower, but that level 5-8, is probably as good as it will get for buyers.

Then again, the doomsayers could be right: the United States could just burst into flames.


Mark Perkins said...

it looks pretty bad right now. We are basically at the top of a multi decade bubble. bubble in credit bubble in equities, bubble in housing, bubble in oil and commodities that is slowly crashing to the mean. I mean rates are at zero and nothing is getting better. Looks like zombie banks right now like Japan. The gov. has lost the ability to manipulate the market into fantasy economic growth with low interest rates. It's like. If you know Sykes' supernovas, that chart is our whole economy for the past 40+ years.

PE means nothing with major deflation and deleveraging that is out of control and no end in sight. All the data we have on PE was in the old era before this collapse.

gee guess I'm not that optimistic haha

Mark Perkins said...

oh man that's a great chart. nice find. I was looking for a Dow chart to really get a feel for how overextended we have been since the last depression.
thanks for putting that up.

you can see how small the move was in the 1920s that brought us 10 years of depression. oh man, it looks like we needed some cooling off in 90 at the least. i think that means the dow could easily go to 1,000-3,000

maradona said...

Hi, link exchange? plz replay in my blog

Complacent Panda said...

Glad you liked the chart Mark =)

maradona, I've gotten kinda lazy about the whole blog list thing (there are just too many freaking trading blogs out there) and don't plan on updating it anytime soon. As for link exchange to the right, it normally takes me a bit of time before I add someone over there. I'll take a look at your site and I'll get back to you.