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Strategies & Market Trends : MDA - Market Direction Analysis

SPY 683.47

+0.6%

Nov 28 4:00 PM EST

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To: jjs_ynot who wrote (21625)	7/31/1999 12:44:00 AM
From: pater tenebrarum	Read Replies (1) of 99985

Dave, let me add to Bobby's comment: the problem with "estimated forward earnings" is that the estimates are often overly optimistic, especially when the last two quarters have been good. analysts tend to simply extrapolate the most recent economic scenario to arrive at their estimates. this is one of the reasons why a bear market in equities will start to feed on itself, as a sinking market would slow the economy, which in turn would lead to downward revisions in earnings estimates, which in turn would sink the market more, and so on. a big bull market always sows the seeds for it's own demise. indexation for instance has driven SPX p/e's to the insane levels they're at, as the index funds are mindlessly buying as long as they get inflows. imagine what happens when outflows should start...they will be equally mindlessly selling, which will lead to more outflows, which will lead to more selling, and so on. until one day the SPX p/e is back at 6 and Business Week bemoans the 'death of equities' in a cover story...<g> regards, hb

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