THREE REASONS WE’VE SEEN THE MARKET BOTTOM
JP Morgan thinks we’ve seen the market bottom. They cite three different factors that lead them to believe this:
1. Analysis Paralysis: Proxy for Buy-Side Capitulation. For the first time since the correction started (April 23rd), we saw demonstrable “analysis paralysis” from our clients. That is, despite rationally saying valuations are attractive, they were unable to find any stocks they were willing to buy at any price.
2. AAII Diffusion Index (% Bulls less % Bears) fell into negative territory. This fell to -21% this week, reflecting a broad-based decrease in investor confidence. As shown in Figure 1 below, a push into negative territory is historically associated with past correction lows.
3. In past intraday Crashes (a la 5/6’s “Flash Crash”) markets stabilize average 30 days later. It has been 21 days since the intraday decline of 9%. Since 1900, in the 6 prior instances of 9%-plus intraday crashes, markets tend to bottom by day 32.
Source: WSJ
I can’t believe this is the kind of commentary investors gets from supposedly smart bankers over at JP Morgan. The above info is nothing but gobbledygook that passes for analysis these days.
The problem with most analysis is even if they get the earnings projection correct it says nothing about what kind of multiple that investors are willing to place on those earnings.
Historically, the earnings multiple ranges from 10 to 20 which means that even if the S&P500 earns $90 next year the market valuation spread is 900 to 1800. Although it seems that now that we are at 1090 the market may seem cheap, there is no guarantee that future stockholders will be willing to mean revert the multiple upward and let current stockholders profit by unloading their shares to them in the future at that higher price.
Old Chinese proverb say: People who pick bottoms get smelly fingers
Alright… June 23rd is The Bottom.
The market will drop fast, so don’t blink.
I wonder if anyone ever reads these strategy reports.Some of the data/facts they collect is sometimes interesting but interpretation are generally not worth the paper they are written on . 99% of the times the commentary is bullishly biased.
http://Greenworldinvestor.com
If analyst knew they would not be Analyst.
I love to look at past predictions. Same people still predicting.
Most big moves have not been predicted.
The Banks ability to conduct business (Lending) is based on the collateral it has on hand.
Cosequently the Banks are the “Best Source” of Positive comments one can find.
If I owned an “Underwater Bank” I would be talking up my collateral
There would be a “Bottom in the Markets” Daily
Ask yourself “Why did the Banks need a “Bailout”?
Re: ” In past intraday Crashes (a la 5/6’s “Flash Crash”) markets stabilize average 30 days later. It has been 21 days since the intraday decline of 9%. Since 1900, in the 6 prior instances of 9%-plus intraday crashes, markets tend to bottom by day 32.”
It really irks me when analysts put out stats with subjective comments like this; “stabilized”. What does that mean?
I have this data, and running a quick check cannot find where or how they came up with such a conclusion. Obviously the 9% is data mined. There are a number of 8.80 to 8.90% that contradict their conclusion. They are obviously and possibly intentionally misleading.
Consider these (recent) days with powerful intra-day declines and the market performance over 30 calendar days
09/29/ 2008: -8.8% intra-day Market 23.72% next 30 days
10/06/2008 : -8.8% intra-day Market down 13.46% next 30 days
10/15/2008: -9.40% intra-day Market down 8.76% next 30 days
Other than the above cluster, there is October, 1987 that had a large intra-day swing, the rest are all pre 1960. I consider the market to be too mechanically different then to be directly comparable to now. But still question their conclusion.
Sadly, there have been other popular abuses of stats lately that have made the press (including WSJ front page). Caveat Emptor
* re 09/29/2008 Market DOWN 23.72 % next 30 days
Noone knows where the bottom is and it does not even matter. YOu can trade your way to the top or the bottom. etf-gold-stocks.com