October 22, 2008
The Incredible Shrinking 'E'
“The S&P 500, the benchmark for U.S. equities, trades at 11.8 times estimated earnings over the coming 12 months, compared with a price-to-earnings multiple of 16.6 at the end of last year.”
Not sure if the P(rice) has fully discounted expected E(arnings). You can see from this intraday chart of the S&P futures that price has been coiling tighter and tighter these last couple of weeks. I can assure you that every trader in every time zone is waiting to see how it resolves before pressing on the gas.
Cat: | Time: 10:04 am (utc+8) Comments (12)
Very Zen-like as if to embody the full spirit of a Daoist blogger…
October 22nd, 2008 at 12:54 pm
I saw your headline and thought you were posting about the euro. : )
I can’t find the exact date, but that story about the discovery of a Homer Simpson euro coin in Spain looks like it came awfully close to the top. It pays to read the oddball news stories, along with the oddball bloggers.
October 22nd, 2008 at 3:02 pm
@Ollie: That’s shrinking too (especially as I type this!). I thought the Homer Euro was discovered long after the trend change happened, but my memory isn’t as good as it used to be, when I was a younger oddball.
October 22nd, 2008 at 7:52 pm
I remember having this kind of coiling action in price a couple months ago… can’t remember when since my sense of time has been skewed. The past two weeks have seemed like 3 months.
And I am long Kirin.
October 22nd, 2008 at 8:32 pm
yup, number of stocks setting nicely up (on dailies, for continuation or reversal) has dropped markedly the last few days.
check out AAPL’s after hours trading yesterday, wacky. i don’t trade the core…
October 23rd, 2008 at 2:46 am
Evaluations based on earnings forecasts are suspect. Who really knows what earnings are going to be?
Historical valuation studies based on past earnings can be a guideline, but even they can fool you. The best buying opportunity in the last 100 years-1932-34- came when the P/E on the major averages was infinity: there were no reported earnings. I will bet that the forecasts at that time, given the negative sentiment, were for a lot lower than actually were reported.
October 23rd, 2008 at 5:06 am
Anybody betting for E(arnings) to rise should be committed.
Dad just got back from a biz trip in Japan, brought me some Kirin (along with other beers, sake and implements to consume my new booze, he thinks drinking is my only hobby). Terrible stuff. Just buy a case of Bud Dry and get it over with.
October 23rd, 2008 at 5:29 am
drink dogfish head….
October 23rd, 2008 at 6:49 am
@Steven: I love pointing out coils because it makes me feel like one of those old guys from the 1930s (they were more aware of range contraction/expansion back then because they drew their charts by hand giving them a real “feel”).
@Rod: I agree, it’s a moving target isn’t it? A friend of mine in Chicago, a very good trader, joked during the dot com bubble: “As soon as these dogs report ‘earnings’ I’m going to sell and go short.” He got it exactly right (and as usual, I didn’t listen to him).
@Dan: It’s just a question of when will the shrinking P fully discount the shrinking E.
I drank the Kirin Ichiban last night (640 ml). Lousy head, bit ‘watery’ but smooth… I drank it fast on a pretty empty stomach and got a decent buzz on (and that’s the only thing that really matters, lol).
October 23rd, 2008 at 7:27 am
Yesterday I bought some AAPL @ 91.xx, today I bought some USB 27.xx and FCX @ 25.xx (and sold the nov 30 calls for 4.05, bringing the cost basis to 21.xx).
Picky nibbling at the lows for the next 3 to 6 months sounds good to me.
Call me crazy!
October 23rd, 2008 at 9:42 am
@Cap: Fighting the tape is OK as long as you’re sticking it all in the Buy & Hope portfolio.
October 23rd, 2008 at 9:53 am
The buy & hope port should be bulging by xmas. Let’s hope Santa doesn’t empty his sack on me.
October 23rd, 2008 at 9:58 am
@Cap: Christmas 2018? You forgot the date (key to all forecasting!)