I've got plenty of data, just no analysis of it. If you want to you can go to my web site at momentumonkey.homestead.com an look at the history. I'm sure one can find a relationship to earnings changes. I update earnings of the S&P monthly, usually the first week of every month. The only big change was December where both the earnings estimates and growth estimates for the S&P dropped noticably. Since the discount rate, 30-year treasury, 10-year treasury U.S. dollar index dividend yield and earnings yield of the market are key variables, the target price derived should be where the market should trade.
The model is influenced by both price and earnings momentum, but mostly earnings. Here is where the risk is. If earnings come in strong, the model will turn less bearish, neutral or even bullish. However, since I use consensus earnings estimates of future earnings to 2002, I have found that although earnings usually top estimates, surprisingly the earnings growth rate goes down and the result is usually offset.
Bottom line is that I'm not worried about the current sucker's rally. I'm comfortable with being 100% in Ultrabear Pro Funds (2x S&P). I've weathered much worse storms before and ended up on top. The market is over-valued. The U.S. dollar is trending down signaling flight of capital out of our market. Lower interest rates have helped, but the lower outlook for corporate earnings has more than off-set that. This market is set up for a fast, furious fall.
My model is of the S&P and not the NAZ or DOW. I've thought about modeling for those, but I haven't had time and it would be hard to keep them updated. As we have seen it is entirely possible for the markets to go in different directions at the same time. |
