One recurring question posed to finanial pundits in the financial media over the past two weeks has been "is this rally real" with the bullishness of the response usually directly proportional to how many assets any given pundit is trying to offload.
A funny thing happens to an index's valuation when you choose not to entirely ignore the companies that have negative earnings (i.e. losses). Ever wondered what the P/E ratio of the Russell 2000 was given that it is full of companies where the 'E' is negative? The answer is simple - and ugly - as The Wall Street Journal exposes, the aggregate P/E of the Russell 2000 is over 200x which perhaps explains the gaping chasm between bond and equity valuations for this highly credit-sensitive cohort.
Submitted by Lance Roberts via RealInvestentAdvice.com,
In last week’s missives, I discussed the potential for an oversold, short-covering bounce which was to be used to further rebalance portfolios and reduce equity risk. The target zone was 1940 to allow for the completion of the “risk reduction” process.
In recent weeks Bank of America's new chief technician Stephen Suttmeier has been surprisingly bearish, predicting that the rally is over, as Tom DeMark cautioned yesterday, key support levels are not defended in which case the S&P 500 is looking at a substantially greater drop. Today, his skepticism reached new heights, when he warned that should the failure to break out higher persist then the market is facing a drop to as low ast 1575-1600, something which even Goldman now agrees with.
Below is an excerpt from his latest attempt at a diplomatic guide down:
For the longest time, it was "the most hated rally ever" and, as even the Davos crowd has now admitted, with good reason: it was all central bank manipulation and intervention, both of which are about to lose all potency forcing even the billionaires to admit that "the trade now is to hold as much cash as possible." As the WSJ summarized three weeks ago, the billionaires' "mood here was irritated, bordering on affronted, with what they say has been central-bank intervention that has gone on too long."