A look at S&P/ASX All Ordinaries P/E data since 1974.

The random walk theory does not look right and current index valuations have a strong predictive ability for future long term returns.

Volume tends to expand in the main direction of the trend. In a bull market, advances accompanied by increasing volume or declines on diminishing volume are taken to be bullish. Conversly, in a bear market, declines are accompanied by increasing volume and advances show diminishing volume. Volume should always be studied as a trend (relative to what has preceded). – Richard Russell, The Dow Theory Today

Too many people are focusing on the the recently finalised results of Q4 2008. That quarter is now a closed book, the stock market is looking forward and I suggest you do to.

Diving down from the S&P500 quarterly earnings into the sectors and a comparison of consumer discretionary and staples. While most short term investors are still focused on consumer discretionary’s negative 2008 Q4 and Q1 09 I recommend looking beyond those to the inevitable accelerating profitability and sensational year on year comparisions that await.

Does sector rotation work? Plus S&P rebuts Jeremy Siegel.

Equity markets are currently a wild roller coaster ride. With volatility remaining high most days bring gut wrenching up or downs. No-one knows what is going to happen tomorrow or even next year, though that’s the one question that keeps being asked. I never was a boy scout, but I am a big believer in their motto of being prepared.

Many market participants suffer from the need to do something, to buy or sell. They may achieve better results if they stopped doing and started planning. One way to beat an index is timing one wave correctly. As the equity markets are like an ocean there is never a shortage of new waves to get in tune with. Rather than guessing when to start paddling to ride the wave, get in tune with the waves then watch and react at the right time.

That’s enough of the nebulous phrases, let’s dive in to see how to put it in to practice.

“During severe recessions the PE ratio of the market often drops below 10. The forward PE is 19 right now based on expected reported earnings. I’m not saying it will happen but in a severe bear market the S&P500 could go far under 600. That may sound incredible but it’s certainly not impossible using history as a guide.” Thomas Nogales

A few friends have been asking me whether they should invest now. In general I suggest indexing utilising market timing to further enhance dollar cost averaging. A friend cut me short the other day and asked what an index fund was. It is amazing what you to start to take for granted when you’re familiar with a topic.
The S&P 500 is an actively managed market-value-weighted index. It represents the best large companies in America, not simply the largest by market cap, sales or any one measure. It has been been …

Following on from yesterday’s How Low Can We Go, I thought it would be good to look at the S&P earnings data. The S&P data shows TTM reported earnings have been falling for a year after peaking in Q2 2007 at $84.95. Earnings are down 29% to $60.39 as of Q1 2008. As if that is not bad enough, estimates for Q2 08 predict earnings hitting a low of $51.68 before improving slightly in Q3 and improving thereafter.
A rosier view is gained by concentrating on the quarterly earnings rather than …