The New SP 500 Bubble!

Financial Sense, market commentator, Martin Goldberg, has made an interesting posting called Bull Market in Trust, Bear Market in Dividend Yields

This part I find so interesting:

The apparent failure near an all time high suggests that the year 2000 high in the S&P 500 may have marked the beginning of a new secular bear market which, in spite of the eight year march to a marginal new high, has not ended. Remember, the 2000 high included contributions from a known and confirmed technology stock market bubble. So was the more recent S&P 500 high totally “clean” and supported by valuations? In my view, this new high is characterized by a general stock market bubble which is not getting any attention in the media or financial industry for several structural reasons, not the least of which are the more obvious bubbles that are taking place (and bursting) in real estate, US consumer debt, and also commodities (actually the commodity bubble is a legitimate one caused largely by central bank-created inflation). When was the last time you heard any serious discussion of dividend yields of stocks in comparison to those that occurred prior to the 1990s race to the 2000 high? Today’s stock market bubble is Wall Street and the financial industries’ “dirty little secret.” They’ll only tell you what they need you to know.

Still, unless the market action warrants it, you don’t need to know that the average dividend yield of S&P 500 stocks is just under 1.9% and dividends of less than 3% used to be cause for valuation alarm. (There are 113 S&P 500 stocks that pay no dividends at all.) All you have to do is believe that today’s businesses don’t require that corporations share their profits in any meaningful way with its shareholders.

Click here for the rest of the posting: Bull Market in Trust, Bear Market in Dividend Yields

The Nasdaq 100 Earnings Issue

My Dearest Moo Moo Cow,

Today's FSO Market Wrap is done by Mr. Martin Goldberg and Mr.Goldberg focus on The Nasdaq 100 - Wall Street's Dirty Little Secret.

• The stock market looks at valuations, but sometimes it doesn’t see them. This is one of those times. Valuations of the Dow and S&P 500 are often discussed since they can now compare somewhat favorably with other times in recent history. What the market may not be seeing is the fact that the stocks within the major indices have just completed a multi-year run of double digit earnings growth and this cannot continue indefinitely. Still the bull case sees this double digit earnings growth resuming after the most recent quarter’s growth decelerated into high single digit percentages. And to be fair, may be this earnings growth is something that I’m not seeing. The most recent quarter’s single digit percentage earnings growth beat analysts’ “expectations” and this was the apparent reason for a sharp and erect multi-month market rally. The bear case has earnings growth decelerating in the near term future while P/E’s compress as a result and the bear market resumes. For the major indices, one can defend either the bull or bear case, but for today, the market has decided – bulls win! For tomorrow, it’s anyone’s guess.
  
  While the valuation case can be argued either way for the Dow and S&P 500, similar arguments cannot be brought forth with a straight face for the Nasdaq 100. It amazes me that there are precious few references where one could evaluate the price/earnings (P/E) ratio of this almost $2 trillion index. You can find the P/E of the Dow Industrials, S&P 500, Dow Utilities, or Transports by simply looking them up in the Wall Street Journal, Barron’s, or Investor’s Business Daily (IBD). But no such “look ups” seem to be available for the Nasdaq 100. Is there something to hide? Fortunately with the ability to download spreadsheet data from Yahoo Finance, one can easily evaluate the index as a whole as I did. What was found is staggering. The index is overpriced by any reasonable measure except for those involving technical chart analyses.
  
  If one were to ignore the components of the Nasdaq 100 with triple-digit P/E’s and those with no trailing earnings at all, the arithmetic average trailing P/E of the remainder of the companies in the Nasdaq 100 is 34.3 and the forward P/E is 22.1. Including all components of the Nasdaq 100, the forward P/E is a whopping 34.9. Earnings growth based on Wall Street analyst expectations is projected to be over 35% over the next year. There seems to be something in the collective business models of these companies that make payment of dividends to shareholders passé. While the current dividend yield of the S&P 500 is 1.91% (way low by historic standards), the dividend yield of the Nasdaq 100 is a mere 0.36% (0.5% capitalization weighted) by comparison. Given that Nasdaq 100 companies are among those most implicated for options back-dating and shareholder dilution, a reasonable person would expect that shareholders would now demand dividends and corporate managements would oblige. Forget it; beyond momentum, there is no reason on Wall Street.
  
  Analysts expect that only seven companies in the Nasdaq 100 will post lower earnings in the next year compared to the previous year. With only seven companies (7%) expecting to have an “off year,” this would seem to be a rosier forecast than any reasonable soul not from Wall Street would expect. What happens if the US economy slows?
  
  Are the rich valuations justified by corresponding earnings growth rates? A decade ago, the sector was largely unknown and misunderstood; it is 10 years later and the long term fundamental outlook can be evaluated with a higher degree of accuracy. The implied growth projections put forth for the public by Wall Street are unrealistic by any historic standards. Yet, while the Street still tells us “the sky is the limit,” the public will learn otherwise the hard way.

Click here for the rest of the article. Mr. Goldberg has compiled a summary of Nasdaq 100 key fundamentals.

Are you a fan of IBD?

My Dearest Moo Moo Cow,

Stocks, they simply went up all around, didn't they? In the US, they are talking about the stocks gaining 4 days in a row. Our markets weren't shappy at all: KL Shares End Broadly Higher and according to that Bernama market rap link, the markets were lifted with the so-called first quarter windows dressing and most importing the abolishment of the real property taxs and the very seductive corporate tax exemptions in the Iskandar Development Region project.

How?

Where was the doomsday and the so-called perfect financial storm?

Let's check out what FSO's market commentators are saying in their market wrap: IBD Follow Through Day Moves Market Into "Confirmed Rally"

Here is a snippet of that posting:

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IBD Follow Through Day Moves Market Into "Confirmed Rally"
BY MARTIN GOLDBERG, CMT

Wednesday’s rally brought about an Investors Business Daily (IBD) follow through day thereby putting the market in “confirmed rally” mode. IBD’s word on the stock market as of Tuesday evening was, “market in correction.” But with Wednesday’s action, the benefit of the doubt moves from the bears to the bulls all within a single day. In recent years, the IBD method has been as good as any in predicting the intermediate term position of the stock market. Also relevant is the fact that what they consider to be leading stocks are acting well. While a cynic can throw several rationales at the recent action of the stock market, one trades against IBD’s method at their own significant risk. With regard to IBD, when you find a hot guru, it pays to follow his advice. Trading against the methodology of the hot guru can be both demeaning and expensive.

Below you see the daily chart of the Nasdaq composite. Last Wednesday’s mid-day turnaround which put the market up well off of its lows of the day was considered to be the initial rally. It is relevant that when the Nasdaq composite broke below 2,340 mid day last Wednesday, that was an apparent new low. The quick turnaround flashed a signal that the market’s character had not changed and bears were in for a rapid and tradable rally against their position. Once again, it was a losing proposition to sell into apparent weakness and once again, it was a winning proposition to buy an apparent break of technical support. Over the five days ending on Tuesday, it appeared suspect to the bullish case that the market was advancing, but on anemic trading volume. But when 2,410 was broken and then successfully tested this Wednesday morning, and the Fed said what the market wanted it to say, an IBD follow through day was produced. (The trading volume on Wednesday was only average, and would have been less than average except for the relatively high trading volume in the Nasdaq 100 ETF.)

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How now My Dearest Moo Moo Cow?

Are you fan of IBD's follow through day?

And since we are talking of IBD and ultimately market timing, would my Moo Moo Cow see this as a confirmation of a change in trend and use it as a comfirmation market timing entry signal?

Would you my dearest Moo Moo Cow???

How Now Brown Cow?

Here's an interesting posting by my favourite market commentators at Financial Sense Online. In today's market wrap, Mr.Martin Goldberg wrote the following piece: Complacency Not Wrung Out

Here is a long snippet of what he wrote.

Put these comments into your consideration before making your next investing/trading decision.

• For a number of reasons, the market is likely to sustain additional losses in the weeks ahead. While the market has been lulled into complacency, Tuesday’s action does not change anything regarding the public’s complacency toward the stock market. Nothing has been wrung out - in fact Tuesday’s action merely reinforces the existence of public complacency. Consider that in terms of historic perspective, there was nothing special about what happened on Tuesday. The magnitude of the drop, only a little over 3% on the S&P 500, was nothing tremendously unusual when taken in historic perspective.
• Yet in spite of this rather benign price action, radio, TV, and newspapers were overwhelmed with news, guidance, counseling, cheerleading, discussing, predicting, and various proselytizing about the stock market. CNBC dedicated a night time show to guide their viewers to not get nervous and sell out at the bottom and to focus on bargain hunting. The stock market was the lead story in many news broadcasts both Tuesday evening as well as Wednesday. I’m told that they broke into the Oprah show with a stock market story on Tuesday. While it is refreshing to see the stock market lead, it is totally inappropriate for the market to become the lead story on action that is rather ordinary when taken in historic perspective.
• The news stories all seemed to have the same tone. That is, “don’t worry folks; you don’t want to sell out at the bottom.” There was also a lot of talk and advice on “bargain hunting.” In addition, TV viewers were able to watch straight-faced comparisons between Tuesday’s action and that of the 1987 and 2000 crashes. While this may make for favorable TV ratings, there is no technical truth to such a premise. Below is a chart of the Dow Jones Industrials before and through the 1987 crash. In this case, a long standing uptrend beginning in mid-May was finally broken in early September. (The top occurred in late August – more than 30 days from the market top.) The broken trend was about one month old when the crash occurred.

• By contrast, Tuesday’s action is likely to be the end of an uptrend instead the end of a downtrend as had occurred in 1987. This is clearly shown in the chart below. Tuesday’s action came only 5 days from a (possible) intermediate term top.
  
• 
• The chart below is an updated version from last week’s article, entitled “Market Behavior a Formula for Complacency.” It is clear that Tuesday’s action signaled a change in market character. As the market advanced, the volume diminished until the market finally turned. As it headed downward, volume accelerated. The lower Bollinger band, which served as support during the uptrend, was decisively broken on Tuesday. This is evidence that something has changed in the behavior of the stock market since the summer. Trading volume could not be produced during the uptrend, and as a result volume was produced through a break in the uptrend.
• 
  
• 
• In addition, Tuesday and Wednesday’s action has produced market behavior not observed in history. Tuesday’s S&P 500 trading volume was the most ever! If not for Tuesday’s volume, Wednesday’s trading volume would have been the most ever. Over 7 billion shares were traded over these 2 trading days. With the market in a 4+ year bull, a change in behavior from diminishing volume to record breaking volume is likely to be signaling a change in price action as well.
• 

Yeah Do Not Call It Investing!!!

Martin Goldberg posted the following commentary on FSO Market Warp: ( Market WrapUp for Thursday, January 18 by Martin Goldberg ).

Here is a snippet of what he is saying.

• Don't Call It "Investing"
  BY MARTIN GOLDBERG
  
  It isn’t investing. Not today. Not in this stock market. Not with all this crazy stuff going on within it. Not without any dividends. Not with these valuations. Not with this amount of overtrading. Not with all of this insider selling. Not without any insider buying. Not with all these hedge funds. Not with all of this shareholder dilution. Not with all this margin debt. Not with all the stock options. Not in this economy. Don’t insult my intelligence. Don’t call it investing. It is not investing – it is speculating.
  
  Hold the valuation rationales for the US stock market. They don’t hold water or pass mustard. You can’t rely on Fed action saving most US stock portfolios forever. Sure, they can hold things up while the public is fooled into doing what they normally wouldn’t do, presumably for the good of the short term economy. (Spend excessively and incur mountains of debt.) But know that this is not sustainable, although at times like this it may appear as though it is. But in the long term, valuations will prevail (they always do). When will valuations prevail? It will occur sometime between tomorrow and when the majority of the US Baby Boomers retire. Sorry, I cannot be more specific; but what do I know anyway? Cramer I’m not. (And not being Cramer will have its day in the sun as well.)
  
  Small dividends, small value. Big dividends, big value. No rationale will ever change that; although at times like this, it is tempting to try to invent or buy into someone else’s rationale. You get less than 2% yield for the S&P 500 and less most other places in the US market. So to buy it is to depend on another person or thing standing behind you to pay more than you did for your sub 2% yield. This is possible for a finite amount of time. This is even appropriate. If there’s a good chart, buy it. Got a bad chart? Don’t buy it. But for now, let’s not kid ourselves. If you do this, you are not investing; you are speculating.
  
  With every tick up, this market gains some more credibility with the public, it seems, and this is good for someone’s business. With every tick up the rationales become a tick more palatable. Another contrarian joins the crowd. The market continues to be its own soothsayer. In turn it ticks up again, and then this feeds back again and again and again. It's working like a charm now as it seems that even one day of selling is met by “bargain hunters.” Even the technicians can’t find an acceptable entry point in the form of a pullback, so all they can do is chase. It’s a lot of fun; but let’s not kid ourselves because it isn’t investing and shouldn’t be called that. Call it chasing. Call it speculating. Call it playing the market. Call it herd behavior. But don’t call it “investing.”
  
  And while were at calling things what they actually are, don’t call it a private equity deal; call it corporate rape.

Yes?

Don't look at me this way. You and I know it, right? Well if you don't, do try to read what Mr.Goldberg is saying here!

Cheers!

Them NEW expressions.

I really like Martin Goldberg's commnets on them New expressions mentioned in his Market Wrap.

Finally, the “New” expression… You know, “age 40 is the new 30.” “Oil at $70 per barrel is the new $50.”

Here are a few more "New” expressions.

• Cisco is the new Radio Corp.
  Buybacks are the new dividends.
  A P/E of 20 is the new 10.
  The iPod is the new Walkman, is the new 8-track is the new reel to reel.
  Middle class is the new poor.
  The corporate-owned press is the new independent press.
  Greenspan is the new John Law.
  Bernanke is the new Greenspan.
  Regarding dividends, 1.5% is the new 3%.
  Speculation is the new investment.
  Debt is the new savings (so is home equity)
  Wal-Mart is the new Woolworths.
  General Motors is the new Chrysler.
  Toyota is the new General Motors. (The Camry is the new Impala.)
  Economic statistics are the new lies.
  Financial engineering is the new research and development.
  ……………. is the new Enron.
  World domination is the new world peace.

How true eh?

The brand NEW world.