Research (Investicniweb.cz)
World markets  |  November 21, 2012 06:30:44

What direction they choose stocks in the coming weeks?



With significant declines in major stock indices again wash the arguments as to continue this growth in stock prices, then at least for the continuation of correction, or worse, to begin a long-term bear market, which can take a year or longer. (Source: Finecharts.com)

A few weeks ago, Idevoted to a comparison of macroeconomic indicators, ECRI Weekly Leading Index with its Smart Money stock index mapping behavior sensitive to the weakness of the economy. Article showed the divergence between the evolution of the main stock market index S & P 500 with these two indicators. The above two indicators have a good track record in terms of reliability, which leads to major stock indexes up or down.

Which direction you choose stocks?

Among the arguments for growth in share prices include the fact that the main bulk of investors still not join to invest in stocks. It was while one of the main reasons for the emergence of new peaks in the past. Investors are still rather hold bonds.

The second argument is the fact that the shares, fundamentally still relatively inexpensive. Rather, they are not overpriced, so that it conformed to previous significant price peaks. As an example, the so-called Shiller P / E (P/E10), which is an indicator of share price in relation to earnings, on average, over the past 10 years. According to many analysts, is a much better picture of value creation than a classic indicator P / E.

Shiller P / E is indeed about 30% above the long term average, but still well below levels that investors have experienced the biggest bubbles in history. Growth thus definitely excluded.

Shiller P / E for the S & P 500

December truly is the best month of the year and what it says SMART index, can be found on the web Investment


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