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Strategies & Market Trends : Waiting for the big Kahuna

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To: William H Huebl who wrote (43949)	10/14/1999 7:20:00 AM
From: Gary105	Read Replies (1) of 94695

Bill, Fundamentally: market overvalued with p/e in mid 20's vs historical teens. P/E is function of 1/(i - g) where i = return on equity and g = growth in earnings. Fundamentally we are seeing increase in i and decrease in g. Even if g remained the same and we assume p/e of 25 a half % increase in i (related to long T bond) would fundamentally justify an 11% drop in market, a .3% increase (as bonds went from 6 to 6.3%) would justify 7% drop and a 1% increase would justify a 20% drop in market. Technically - now is the time of the year for market to decline. During '87, market went below 200 d MA on Thursday, had failed rally and further drop on Friday (which was also options expiry), then crashed on Monday - that is why I think if decline occurs it will be in a matter of 1 - 3 days. Sooner or later averages catch up to horrendous A/D line. In a few days people may realize that Greenspan, Buffett and Balmer were really offering friendly advice with their comments on the market.

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