Sunday, May 31, 2009

Still on the edge

I haven't been writing for a while because, as far as stock market trends go, nothing has happened in the past three weeks. Since my previous post, the S&P 500 index closing values have remained between 880 and 920.
My Roth IRA remains 100% in GRZZX.

Friday, May 08, 2009

On the edge and stumped

I've just returned from a three-week astronomy marathon in Texas. Maybe it's from a lack of sleep, but the stock market's behavior since I've been gone doesn't make any sense to me.

For starters, the S&P 500 index has just broken up through a rising tops trend line, without going through a significant correction first.

This doesn't happen very often. To add insult to injury, the accelerating rally is following earlier price formations that usually forecast price declines, such as the ascending wedge formation which formed last month.

My automated model which is based on historical trends is coming close to confirming an end to the bear market. In my gut I know this can't be the case, but I'm not about to toss away decades of stock market data based on a hunch. Since market sentiment remains very optimistic, my investment stance would change to neutral (cash/money market) rather than long (SPY, etc.)

For what it's worth, the stock market is highly over-valued, meaning that the current rally is mostly speculative and not based on any reasonable valuations. The projected real P/E ratio of the S&P 500 for the end of 2010 is now 26, and the dividend yield is still below 3%. However, as I've said before, earnings have very little effect on stock prices. The stock market goes up or down based mostly on whether investors have the desire to own stocks and the money to buy them. Apparently somebody out there has both!