Ron Nelson_

Too Late to Short SPY? An Historical Perspective

jlounsbury59,

Thanks for the reference to your technical analyis. After what could be a bear rally, we're heading down rapidly toward your level 2 support level. What's your take tonight?

Ron

Too Late to Short SPY? An Historical Perspective

Smarty Pants,

I agree, no need to be in a hurry to go back in long, just play the short side for a while -- we're now below the mean, but it's unlikely to stop there. Perhaps one sigma below the mean? That would take us to 604. How about 1 1/2 sigma?

Ron

Too Late to Short SPY? An Historical Perspective

No Free Cake,

You're right, lowered earnings for a year or two don't pull the 10 yr average earnings down by much. The main point of the article (which I may not have made a clearly as I should have) is that if the economic times we're heading into are really as bad or worse than the early '80's, then it's not unreasonable, as a "value investor", to think that the PE ratio could go as low as that of the early '80's, which would bring the SP500 down into the 400 range.

Thanks for the comment,

Ron

Too Late to Short SPY? An Historical Perspective

Matt,

Sorry for the delayed reply. Here's the site for the latest SP500 earnings data:
www2.standardandpoors....

You can download an excel spreadsheet with the total SP500 earnings as well as the sector breakdown. Then use the same smoothing formula that Shiller uses in his spreadsheet. Note the time delay.

Ron

Too Late to Short SPY? An Historical Perspective

Muzie,

Thanks for the comment. As I pointed out, we all know that markets move on a combination of factors -- fundamentals, sentiment, earnings projections, overall world and local economics, etc. The fundamentals are that PE is still historically high and that earnings estimates are falling. Additionally, sentiment suggests things are as bad or worse that the early '80's and world economics are being bludgeoned by the credit and banking crisis.

Given that, is it out of the question that we hit PE ratios similar to the '80's? No, and that suggests SP500 in the low 400's. If it's as bad as the '30's, then it's in the mid 350's.

After writing the above article, I went long with ultra etf's for a while. Then went back to ultra short etf's as the "bear rally" looked to be running out of steam.

Ron

Speculation and the Price of Oil

As the CEO of a solar startup in silicon valley and an interested oil investor (I hold about $200,000 of USO), I have been trying to dig down into the “fundamentals” of spot oil prices. As I understand it, the spot price we usually see in the press is for light sweet crude for delivery a month or so out (August is quoted today). I’m trying to figure out the profits pulled out by the “hands” that oil delivery contracts go thru along the way to consumption. My basic question is, what is the price that the actual producers of that oil charge when they enter into a contract to sell the oil that is then delivered in August by whoever is “holding” it? My assumption is the difference between this “wholesale” price of oil and the final spot market price before delivery is captured by the either speculators or actual consumers of oil who are protecting themselves against price runups.