|Posted by oliver ward on May 21, 2010 at 3:09 AM||comments (0)|
What a day the market gave us today; started by being down at 4175 by 1045 and ended the day off no more than 10 points. No wonder the volatility has skyrocketed into the stratosphere. The 14-day Average True Range / Close topped 3%. The last time we saw this reading pass above this level was back in Sep 2008 and you know what happened after that. Over two and a half standard deviations form the mean. We are now down close to 15% mom. Since 1936 we have had market losses of 20% or more 13 time and 30% or more 6 times, I guess that if we see a market that is off 20% we then have a 50% chance that the market continues bellow 30%.
Keep the powder dry to the next entry point into the market, it will come.
|Posted by oliver ward on May 20, 2010 at 3:26 AM||comments (0)|
NEXT STOP – 4000
It was not long ago we were looking at breaking 5000 and wondering, would it, could it and how much. We got the answer – it did indeed break 5000, the party lasted for 4 days, looks like everyone has a hangover now though. At that point, 5000 area, the market Price Earnings ratio toped out at 17.5, a clear warning of an overbought market. Today the PE has come back to 15.2, more in line with its MEAN, 14.5. The XAO however still remains 4.8% above its mean at 4132. In other words if we go back to the average PE in the market with no change in the XAO earnings of $285 we would get back to 4132. Of cources the market can overshoot this PE level on the down side and who knows where it then would end up.
So we take a look at the charts to get a bit of guidance, on a point and figure chart, the index has just given a triple bottom sell signal which is rather significant. The next support level is at 4050 where you have the bullish support line. There is also some underlying support dating back to June last year.
The PE on the XAO would come back to 14.2 at a market value of 4050.
This market drop of, correction if you may, some 14% started off with a rapid increase in volatility, as measured by Average True Range. A level of volatility we have not seen since early 2009 and close to two standard deviation from its mean.
Over all the picture is pretty ugly right now but if you had stop loss points in place and a game plan this should be a non-event. What we are waiting for now is the next entry point in to the market; usually you get 2-3 entry points per year. We had one back in February and should have the next come up shortly.
As for earnings, looking at the chart of XAO Earnings above, noting that the business cycle is ripe for another earnings growth period. The pattern appears to be around 5 years of growth and then 1 to 2 years of declines. Consensus calls for 13.5% earnings growth in 2010 and 23.2% in 2011; this would put EPS at $300 and $368 respectively. At a median market PE of 15 the market value would come in at 4500 and 5520.
We also need to keep a close eye on inflation as inflation is directly liked to PE. When inflation increases or moves away form price stability towards inflation or deflation, PE ratios decrease. When inflation moves towards price stability PE increases. As long as we do not see a spike in inflation, which is a good chance as commodities are coming off their lows, we should be ok, no great abnormality in PE change or sub ten PE.
The market at this point should bring above average returns going forward, however volatility is the name of the game and should be respected. The market will give us another opportunity to buy in to but until then keep your powder dry.
|Posted by oliver ward on May 7, 2010 at 2:58 AM||comments (0)|
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|Posted by oliver ward on April 29, 2010 at 3:11 AM||comments (0)|
Today’s market action took the XAO to bellow the 50 day moving average, some say this is significant. We are down from the top on the 15th of April at 5048 to 4816 or 4.6% in the matter of 11 trading days. XAO does remain over the 200-day MA which is planted at 4697, this is where some would call for support in the market.
On a PE basis, as some of you would have noticed I do indeed like quiet a bit to keep a close eye on, the market is now at 16.85x. This is off from 17.55x. The mean is around 15, if we were to go back to the mean without change in earnings the market would retreat to 4289 or an additional 11%. Is this feasible, you tell me… another scenario is that we remain in this side-ways trading range which we have endured since August of last year and end up at 4500, or another 6.5% down. Where the market ends up bottoming out remains to be seen but most likely we will see more of this volatility in the near future.
For those with cash on the side this market pull back, as I warned you about weeks ago, will set up the market for a presumably very good entry opportunity. You usually get 2-3 good entry points into the market per year; this may be one coming up. For those with cash and open to other than the buy-and-hold methodology keep an eye out for renewed strength in the market.
Moreover, it may be worth noting that while the ASX 20 is down .97% the Midcaps were only down .17%, this is not the first time this has occurred over the last 11 days, so while your news reporter will tell you tonight that the market is down another percent today you may be a bit better off if you have a portion of your holdings in the mid cap area of the market. It may not be as bad as you are getting told.
|Posted by oliver ward on April 13, 2010 at 3:58 AM||comments (0)|
Market started of the day only slightly off yesterdays close, however, by mid afternoon the indices cam off in a bigger way. The MidCap 50 ended down 1.45% and the Smalls lost 0.91% while the ASX20 managed to stage a slight loss of only 0.45%.
The only two sectors to remain in the black was the Telecom, Telstra was up 2.
9%; and Utilities.
The biggest loser was the Energy sector.
Today I wanted to have a quick look at the PE and EPS on the Small Cap sector. Going back to 2002; XSO data gives us a PE median of 12.5 and a STD of 2.18. On todays close the PE stands at 14.4, one standard deviation form the mean.
As for the Earnigns on the small caps they have grown on average of 13% since 2002 per year, toppin out at the end of 2007 at 323 dollars per share. Today the EPS stands at $183.
I’ll let you make your mind up about what these ghraphs are telling you, if they tell you anything at all that is, in any case whatever it is, it is what you belive.
I do suggest that you have a look at Cresestmont Research, link under links.
|Posted by oliver ward on April 12, 2010 at 8:11 AM||comments (0)|
I find it peculiar that since we are in an obvious economic recovery, according to the government and media pundits, that they find it necessary to bluntly advertise a50% OFF stamp duty for new home buyers.
On channel 9, during CSI, on came this used-car-sales-man-ad offering a 50% cut on stamp duty, - BUT ONLY TIL JULY 31, so HURRY up and don’t miss your chance to save.
Is that what the Australian government has become, used car sales men, or were they always?
|Posted by oliver ward on April 9, 2010 at 2:57 AM||comments (0)|
Iress just posted the Price Earnings Ratio on the ASX All Ord for 31-March. The PE was 17.11 and the All Ord index closed at 4893.064, this puts the EPS at $285.9768. Month over month PE is up 8.84%, All Ord is up 5.20% and EPS is down 8.08%
The market continues to be driven by PE change with little support from EPS.
As a matter of fact EPS is now down some 26.08% over 12 months and PE is up 87.40% while the market has returned 38.5%.
Media and analysts keep talking about recovery in the economy, looking at the Earnings Per Share on the Stock Market there is no apparent sign of any recovery. We have to date not seen an ounce of positive movement in the change in earnings. In the month of August EPS stabilized at $336 and stayed at this level for 6 months until January this year, in February EPS was off an additional 10% to $295 and this last reading put EPS at $285 down an extra 8%. What is going on with this recovery?
As I have stated before this market has since the bottom in March 09’ been driven by an increase in PE with no support from EPS, but where are we now and where are we going, at PE 17 we are defiantly at the upper range of where we see PE max itself out. The top being 20, which we have only seen at 5 occasions since 1970, if we were to get to PE 20 with current earnings of $285 we would have a market value of, you guest it, 5700, - up 14.6%. The drop of EPS just shaver 200 points off the All Ord at PE 20. In other words the best we can possibly see the market do without any support form increased Earnings is an increase of 14.6% from current level.
What is the average PE on the market, 14.5; at 14.5 times current Earnings the market is valued at 4132, down 17% from today. This puts the Risk Reward Ratio at 1:1, is that a game you want to play?
The chart above is market PE; as you can see PE has only reached 20, 5 or 6 times in the last ca: 40 years. Look at this market as sailing up-wind and we are requers to make numerus tacks to reach our destination. The wind may die and then we have the choice of either sitting dead in the water for who knows how long or we can chose to break out the ores.
This chart shows you the change yoy in PE. In the last 30 years we have had a PE change in the market of 40% or more no more than 5 times in the past. And at no time has the change exceeded 60%. This time around the yoy PE change has exceeded 80 and is now at 87%.
The interesting part is this; on most occasions when we have seen this type of extended PE change there has been a subsequent market correction, will this time be different?
Manage your stops and calculate you risk.
|Posted by oliver ward on April 7, 2010 at 1:30 AM||comments (0)|
he ASX today closed at 4983, on the doorstep of 5000. The question on people?s minds now may be, will we break through the much publicized psychological 5000 barrier and sail into the glorious horizon and revisit old friends at 6800 where everyone is happy and friendly.
The good news is that the market seams to want to go up; and up and up, this is where the good news stops however. If you look at the value of the market on a PE and EPS basis we see a different story and the sunny horizon looks more like storm clouds gathering for a preemptive strike. With today?s close the market PE is resting at 16.8 when calculated on a market EPS of $295, posted at the end of Feb.
What does this tell us; if you look at the ASX PE and the trend of such you recognize that there are distinct barriers and levels on the ASX PE levels the market can reach and will not move away from? On the low side you have the area of around 10, the median is 15 and the top level is 20. In other words, the market hardly ever traded above 20; as a matter of fact the ASX has only traded over 20 on 4 occasions since 1974. On the flip side you have the lower PE area of 10 and bellow. This is where the market started from in March 2009, from where we have seen this latest stock market rally from.
So, on an EPS of $295 and a PE of 20 we would have a market at 5900. At the median the ASX would trade at 4438 and at the lower level of 10x the ASX would be valued at 2958. On a percentage basis the top pe of 20 is some plus 19% increase in the market value from where we are today. The median is minus 10% and the low side of PE 10 in -40% from where we are.
The market is over valued, can it go up from here, of course, are you encouraged to put your money to work for a move, for the fifth time since 74?, to a possible PE of 20 and a market gain of 20% from here or would you rather wait and keep your powder dry for a better field position. And possibly side step a 10-40% correction? Let?s at least be careful out there.
|Posted by oliver ward on April 3, 2010 at 5:07 PM||comments (0)|