Mr. Bear Is Growling At The US Stock Market

Mr. Bear Is Growling At The US Stock Market

$SPY, $DIA, $QQQ

After diving 11% from 17-27 August, the S&P 500 index rebounded 6% and gave back most of it on Monday and Tuesday, and is -7.0% YTD.

The S&P 500’s P/E (price-earnings) ratio, using 5 years of earnings, at 20, up from a long-term median average of 17.

The weakening of transportation, utility and industrial shares serves as a warning sign for the market. This looks like we are going into a cyclical Bear market, read meaning a decline of 20 to 25% ahead.

A 25% fall from the S&P 500’s 20 May record high of 2,134.72 would put the benchmark index at 1,601.

Nobel laureate economist Robert Shiller wrote in the NY-T that a return of his cyclically-adjusted P/E ratio, which take into account 10 yrs of earnings, to its historical norm, would put the S&P 500 at 1,300. The ratio now stands at 25.1.

The market’s volatility is happening for 2 reasons:

1. Participants do not know what the Fed’s going to do.
2. The Chinese RMB Yuan devaluation was a game changer.

Until those 2 things are resolved it will be very hard for the stock market to rally in here.

At the close on 1 September: DJIA -469.68 at 16058.35, NAS 100 -140.40 at 4636.10, S&P 500 -58.32 at 1913.86

• NAS 100 -2.1% YTD
• S&P 500 -7.0% YTD
• Russell 2000 -6.5% YTD
• DJIA -9.9% YTD

Stay tuned…

HeffX-LTN

Paul Ebeling

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