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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA -- Ignore unavailable to you. Want to Upgrade?

To: Terry Whitman who wrote (16089)	2/5/2003 2:15:37 PM
From: yard_man	Read Replies (2) \| Respond to of 19219

>>What I'm really tired of is bears using the average P/E ratio at market lows to 'prove' we're nowhere near bottom. That calculation is even MORE problematic, because there are 2 variables, and since it's a divisor, the resultant can go to infinity as the E goes to zero- rendering the whole exercise moot. << You miss a valid pt that bears make -- that there are non-zero earnings at the bottom -- i.e. selling does continue into an earnings recovery because the earnings recovery is not believed at a bear market bottom. Here it is believed that an earnings recovery is "around the corner" to the extent that some clowns will pay huge multiples for a biz that is not growing -- i.e. CSCO. Typical bear market behavior. Wait for them to start selling good news, not believing it ... Arguments about PEs and dividends returning to norms are reasonable, IMO and you don't have to turn to statistics to make them. To insist on anything else (no return to the norm or even an undershoot) is to argue that something fundamental has changed about the nature and causes of bear markets or human behavior. At the end of the day -- the underlying companies have to earn something and the value of these earnings are weighed against a risk-free rate -- we may wander very far away from that, but there IS a permanent association. You would be much better off trying to discern where earnings are going, than using simply price action to divine where a bottom is. The same argument regarding PEs at the bottom does not apply to sectors -- some sectors may well bottom with losses -- commodity producers are a case in point.