Market Alert
The market advanced nicely for the week. It will no doubt be seen as
a Godsend for many suffering with depressed 401Ks. The trend is
positive. However, we have a fairly strong overbought condition on
both my 25 day oscillator (SP 500 is a hefty 6.6% above the 25 m/a)
and on RSI (See chart link). Shorter term players should take note.
SP 500 chart.
Earnings Note
Some of the boyz along The Street are starting to play fast and loose
with interpretations of earnings. they want that red ink Q 4 '08
number to go away. So, some have pulled out AIG, GM and other sick
pups that collapsed in value. Others are working to "normalize" the
earnings data so that the 12 month net per share reading will not look
so awfully low against the current level of the market. Now, S&P
observed that companies rushed to write off everthing their auditors
would let them get away with in last year's final quarter. They may
have written off up to $ 10 a share, thus "borrowing" losses from
2009.
SP 500 eps for the 12 months through 7/09 is most probably around
$40. That gives a whopping 24.5 p/e ratio -- a tough sale, no? To make
matters worse, that nettlesome Q 4 will not drop off the 12 month
running total until Oct. '09. In my view, investors have simply put the
12 month number aside and are looking at earning power going forward
in a recovery. I think they are now pricing in $15 quarterly earning
power for the SP 500 and $60 annual. That is not a "stretch" number
at this point. If you are looking at material wherein the analyst is
putting forth a $60 number as the current 12 month number, you are
reading the work of a charlatan.
Now a final point here. Since companies in toto may have shifted $10 a
share in losses from 2009 to late 2008, then it follows that current
comparisons yr/yr are are overstated. It also follows that the $60 in
estimated earning power is also a bit overstated, say by $5. I would
conclude the market is fairly valued for the next several months, but
is far from undervalued.
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