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Strategies & Market Trends : MDA - Market Direction Analysis

SPY 684.83

+0.6%

Dec 22 4:00 PM EST

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To: John Madarasz who wrote (71756)	3/11/2001 8:35:42 PM
From: Sea Otter	Read Replies (4) of 99985

A Naz of 1000 is a reasonable fair valuation. Perhaps a bit simple-minded, but if you apply a straightforward P/E test on the Naz, we're still way over-valued. In fact, the Naz comes in around 1000 on that test. The Naz is now at 105 P/E. Historical average is 45. So roughly, give or take, the Naz would need to fall to 1000 to reach fair valuation as judged by historical P/E averages. This assumes, of course, that earnings don't tank. It also assumes that we don't overshoot on the downside. In other words, a 1000 Naz is not only credible, but is even optimistic when you consider the historical and macro context. I know P/E is considered antiquarian by many. It is indeed a flawed measure but, even so, it is far better than the "analysis" you hear from the talking heads on television. Does anyone actually follow those people? I mentioned a Naz of 1000 to some of my trading friends over the weekend. To a man and woman they were appalled and said it could never happen. (Most think we're at the bottom or very close to it). When I stated the reason for Naz 1000, they didn't know what to think. People don't even seem to think about P/E anymore. Instead they think in terms of psychology and mood.

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