Has the rally reached the stupid phase? I think that it has. The question is.......will pounding the table do any good? For example. Will anybody REALLY pay attention to current earnings and PE ratios? Oh.....I know....I know......that doesn't matter because the "charts" know everything. But, with 86.6% of the SPX issues in the bag as far as reporting goes, the PE of the index is 23.14.......BASED ON THE 12/31/2016 index close.......not the current price but the 12/31 price (price is 5% higher now). Are you aware that "as reported" index earnings per share are tracking below 12/31/2014 by 5.4% at present (as reported [GAAP] is the ONLY thing that matters in my book.....but the goofy earnings are tracking the same way). So here we are with earnings tracking flat to down at best and the index up 14.2% comparatively. I guess we are going into a recession because the market always seems to make this kind of move right before one hits.
But the real question is........will pounding the table do any good? And what follows is some food for thought. First of all, I postulated a 1/26 high as my last posted target and that worked pretty well. I had early evidence that we would pull back and then go through that high but the way the evidence developed made me unsure of that........so I said nothing. Since we have exceeded that date's highs, I will now confidently say that the market maintains strength at least into February 28th. Can that be a big time high? Sure can......but wait.....
Something rather rare just happened. I have posted more than once about my spreadsheets and my own indicators built into them. I formatted the numbers so that my base signal line would run from 1-1000. 100 and below is very extreme on the downside and 900 and above is very extreme on the upside. I have data going back to early 1999. That is on purpose because I want to give weight to the period AFTER the personal computer began to be widely used and the internet made it possible for the average investor and/or trader to have access to very good information AND have direct access to the market as well.
For the SPX cash market I have 4,562 trade dates on the spreadsheet. Out of all of those dates, my base indicator has only closed at or above the 900 level 54 times. What about two consecutive closes at or above 900? That has happened only 9 times in 4,562 trade dates. And then there is the really rare event.....THREE consecutive closes at or above 900. That has happened only 5 times AND THE FIFTH TIME was on February 15th. On top of that the index skipped a day and then added yet another close at or above 900.......4 in five days. So here are some numbers for you.
First, I looked at the 54 times with a SINGLE close at of above 900. I chose to project ten days out. I recorded the maximum points up, the maximum points down, and the closing price ten days out and averaged them. The average maximum points up within ten days for this group was 23.81 points. The average maximum points down within ten days for this group was (21.97) points. However, the average ten day closing price was plus 3.79 points. Clearly that is not a lot, but it also strongly implies that shorting the extreme prices and fantasizing about getting rich on the dump is likely to lead to mere frustration.
So then I looked at the next extreme grouping.....the nine times with (two) consecutive closes at or above 900. The numbers change a bit but not dramatically. Here the average ten day maximum upside is 19.27 points and the average maximum downside is (19.02) points. Interestingly, the average ten day close is only .52 points higher.
But remember, this time we have the rarest event........three consecutive closes at or above 900. For this small group, the maximum upside average surprisingly shrinks a bit to 18.45 points. But, the average ten day downside maximum also shrinks to 10.78 points (10.38 points lower so far on this move). Here though the average ten day close is 12.97 points HIGHER. So even though it may look stupid on the surface, the market is saying rather pointedly........short is not right.......right now. By the way, I also looked at the close thirty days our for the prior four SPX events in the "rare" category. The thirty day closes were +22.10, +33.89, +49.45 and (25.72). The minus 25.72 occurred the last time that this happened in July of 2013 (twenty days out was still PLUS seven points).
Also, you might want to pay attention to the DOW. It just did FOUR consecutive closes at or above 900 for only the second time in the time period measured. The last time was in June of 2014. Thirty days out the DOW was PLUS 410.43 points. It also did three consecutive in January of 2013 and then 2 more in the next four days.......also extremely rare. The DOW closed thirty days later PLUS 550.16 points.
Selah.
Edited by Iblayz, 21 February 2017 - 12:07 AM.
