Market Timing - Short Term Direction and Magnitude Message Board

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Strategies & Market Trends : Market Timing - Short Term Direction and Magnitude

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To: David Lee Smith who wrote ()	4/8/1999 7:01:00 PM
From: David Lee Smith	Read Replies (2) of 10

One model that has worked for me for the last 15 years is simply the relative yield of the one-year projected earnings yield (consensus estimates) of the S&P 500 and the 30-year Treasury Bond. The market is at a high when it's earnings yield trades around 50% of the T-Bond Yield. The market is at a low when it trades around 95% of the T-Bond Yield. This model worked perfectly until two years ago. Since that time, the T-Bond has not behaved normally. I have tweeked the model to use a 50 bp discount to AAA corporate bonds as a proxy with some success. Using this model, I have a target upside for the S&P 500 at 1368.678 and a target downside of 720.3569. Given the weak market internals and the bearish rising wedge technical formation, I expect we will be at a top very soon. In my experience, rising wedges often result in violent, severe declines.

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