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- Market crash or to the moon; look at the P/E ratios..., as this in-depth report ended with, "Based on the extreme sentiment readings, it is unlikely that the Dow Jones will grind beyond 10,000 in the near-term. Based on long-term valuation me |
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P/E Ratios point to market collapse? |
S&P 500 P/E - Sound reasons for a stock market crash
Source: http://finance.yahoo.com/news/Why-Dow-10000-Will-Remain
* By Simon Maierhofer
* On 12:31 pm EDT, Monday October 5, 2009
"The chart above reveals two key factors:
1) Based on P/E ratios, the stock market is grossly overvalued, even at current prices. As per Standard & Poor's research, the preliminary Q2 2009 P/E ratio is 140.76 (99% of companies have already reported).
Historically, a P/E ratio north of 20 is viewed as expensive. Historically, there is almost a 70% chance of correction after P/E levels spike above 25 - 30. Imagine the impact of a 140 P/E ratio.
2) The chart clearly shows that the stock market does not bottom unless P/E ratios completely reset (indicated by the red line). This was true in the 40s, 50s, 70s and 80s. In 2002 valuations were not reset. As we now know, the 2002 lows did not last. Earlier this year, valuations were not reset either. The implications are clear."
Source: http://finance.yahoo.com/
The P/E rations must fall to reset; the stock market must bottom, before we can see a sustained rally. In other words, this article, "Stock market crash alert", may be onto something.
P/E is key, the rest is fluff, TARP, stimulus and hype.
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