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Strategies & Market Trends : Waiting for the big Kahuna
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To: Tommaso who wrote (31821)10/16/1998 10:57:00 PM
From: bearshark  Read Replies (1) of 94695
 
Hi Tommaso:

It is funny about the source of these things. Gould was around from the 1920s through the 1980s. He used Dow because it is evident from his work. The three items that Fosback mentions are the same as Gould's. I have always used them myself.

Gould did a study back to 1900 on the yield to price ratio of stocks. He came up with something he called a sentimeter. He priced the value of dividends by looking at the price of a stock (a price to dividend ratio). His conclusion was that a reading of $30 or above for $1 dollar of dividends indicates a high and risky market. He also concluded that a reading of $15 or lower, indicates a relatively safe market. He went back to 1900 with his data. This is what I applied to the DJI stocks last year. I ended up with something like 4500.

I think it will be quite amusing if the market continues to climb with flat to lower earnings in many stocks. That should give us a PE of close to 30 soon.

I have no idea where the market will be going but right now it is saying up. I loaded up with stock on Wednesday--PEs of 5 or so. I was buying for the long-term but my holdings are up 40% in two days. So I am going to stay with it.

Eventually, the market will come down again--from what point I do not know. However, I caught the decline in May to August and I will catch the next one also. I am just a cross-dressing bear.
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