Chicken Little, meet CAPE

Posted on Mar 05, 2017 by in Letters

http://stockcharts.com/h-sc/ui?s=%24SPX&p=D&yr=0&mn=6&dy=0&id=p70142979615&a=266398464

The musical score of this market is furnished by chickens clucking.  Incessantly.  The more the sky doesn't fall the more insistent the clucking becomes.  The P/E ratio is too high.  Cluck cluck.  S&P P/E 26.75 at the moment, against an average of 15.64 (median 14.65, minimum 5.31, maximum 123.73).  A good time for a teachable moment.  The P/E is not a definitive indicator.  It is a debateable tool in the never ending search for the philosopher's stone -- which ever flees before us like a holy grail.  And there is no known tool which reliably identifies the top.  Long term trendline breaks  are very useful, and even short term breaks are indicative.

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