For Skippy, re the S and P 500

[_nova]

Skippy, actually your question made me really rethink my possible bias as in this market no one can afford to be biased. I decided to go back to fundamentals so that I can give you a clear and unbiased answer. Where the SnP is concerned most people are making the mistake of thinking that the PE ratio is dropping like a rock. Well yes, the P certainly is dumping but the E is dropping faster and the PE for the SnP is actually going up, making it more expensive now than what it was before the drop. Don't take my word for it, Standard and Poors give all the projected info on their website at www.standardandpoors.com so go check for yourself. They even provide a spreadsheet with projected earnings. Here's the very scary projections that they themselves are reporting based on 92% of companies that have reported to date (remember that a PE of 10 is value and 20 is overbought). Their 'AS REPORTED EARNINGS PE' for 31 Dec 08 is 29.78 at 903.25 on the index. Their projected quarterly PE's based on the latest update at 19 Feb 09 at an index price of 778.94 are... wait for it... 31 Mar 09 at PE 41.03, 30 Jun 09 at PE 54.20, 30 Sep 09 at PE 61.70, 31 Dec 09 at PE 24.03 etc, with PE's only coming below 20 at the end of 2010. I think these projections make a stark point that the talking heads are not admitting. For PE's to normalise the SnP probably needs to shed another 30% to 40%. Whether it actually does that, who knows, but I definitely think the risk is downside and I would look to sell rallies, not buy them. I know this is my usually negative rhetoric, but for a change these are estimates straight from the horse's mouth and not just my opinion.

[dookie]

John Mauldin has also been writing for a long time on how earnings and earnings estimates will continue to decline. So, current PE, on its own is probably not the only thing you should consider if you want to know if things are looking "cheap".

[Wizard]

Well PE of 7 is where the bottom is .... Gosh !!!

[louisg]

Nova, surely the PE improvement from "30 Sep 09 at PE 61.70 to 31 Dec 09 at PE 24.03" is a favorable indication that the "E" (earnings) will increase significantly from 3Q 09 onwards. Would you agree that when the US economy "normalizers" and therefore earnings "normalize", that the PE ratio of the S&P will be well below 20 considering the current depressed stock prices? At that stage the FORWARD PE may well be below 10, dependent on prices of course. Do the car manufacturers and some financial companies even make the S&P 500 anymore? If they fall out, what does that do to the S&P historical PE ratio?

[Wizard]

Is there an updated site for the SP500 ...PE?

[_nova]

that's the conundrum louisg, I don't think even SnP can even guess this. Too many variables involved, like just the one you mentioned, 'who is actually going to be in the 500 by then'. I dunno, I doubt it's going to be as bad as they project and current market pricing also says so, but I tell you, just one more little shocker ala Lehman or GM style and the thing will tank with wild abandon. That said, my guess is SnP is going to turnabout fast and hard between 650 and 675 in the next couple weeks and rally nicely to between 800 and 900 around April to June. But after that all bets are off if things don't materially improve in the US

[#7]

The problem with PE, albeit very interesting statistics, is that nobody can ever give me a definitive answer reagrding a share/idex's PE value and current significance. Bottom line is this, as traders we should just follow the price. Yes we tested Nov lows after the triangle break, and will likely see a return move rally to test the break (I'm expecting AGL also to rally and test 170), but here is the simple truth of it... we are in a BEAR market, short the rallies. 'nuff said.