About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Friday, January 20, 2012

Stock Market -- Price Lagging Breadth

The cumulative NYSE adv / dec line made a new all time high this week -- normally a good
sign when price is lagging some. However, this time out there is a big lag. Using my Market
Tracker, the formula for the SPX turns $100 per share current earning power plus a moderate
3% inflation rate into an implied value of 1700 for the SPX. At 1315, the SPX is trading well
below the level indicated by the long term Tracker model and below its previous high set in 2007.
The 23% discount to Tracker value is primarily a reflection of a lower earnings capitalization rate
or P/E ratio (13.2X). So, there is very substantial caution among investors about how well the
future will go. Record breadth shows solid interest while the big discount to Tracker value shows
muted investor confidence. Keep this exercise in mind when assessing market potential.

Breadth & SPX Chart

And, while you're at it, note as well that the market is getting short term overbought based on the
breadth measure.

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