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Strategies & Market Trends : MDA - Market Direction Analysis
SPY 671.910.0%Nov 14 4:00 PM EST
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To: gc who wrote (72579)3/18/2001 3:18:55 PM
From: Jacob Snyder  Read Replies (3) of 99985
 
Signs of a bottom:

1. The Fed is going to lower a third time next week. Stocks are higher a year after the Fed has done this. That pattern is extremely robust, a very longterm pattern. You have to go back to 1929 to find an exception.

2. Net redemptions from stock mutual funds, especially Growth or Tech funds. Again, this is an extremely robust longterm pattern: the crowd times it exactly wrong every time. Net redemptions in stock mutual funds correspond to market troughs; peaks in fund inflows correspond to market peaks. Every time.

3. valuations are now reasonable. The forward PE of the S&P 500 has now come down to about 20, which is (roughly the same as) the inverse of the yield on 10Y treasuries. A 4.5-5.0% yield on LT Treasuries justifies PEs higher than at any time since the 1960s. This is a rough yardstick which has stood the test of time. Yes, there are lots of individual exceptions. However, there even some techs where I can calculate a PEG of 1 now.

I was 70% cash from January to June 2000, but I am currently at 0% cash, 80% long stocks, 20% shorts and puts. I'm even using margin, but I guess it doesn't count, because it's just for short-term range-trading.
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