New all-time high for the Dow – What comes next? Bullish or Bearish?

Historical analysis says “bullish” . . .  We have access to data covering the S&P 500 instead of the Dow.  The takeaways seems likely to be the same.  Analysis by Ned Davis Research suggests the bull market could go one for another 400+ days and the market could rise another 18%.  I have included a summary table below.  While that information is encouraging we must acknowledge there were only 13 occasions revealed by NDR over the last 70 years.  As you consider the possibility of the data proving to be true, recall that the market today is undervalued compared to prior market highs in terms of P/E ratios and in terms of the value implied by earnings discounted by the 10 year Treasury rate.  The P/E ratio at the last new all-time high for the S&P 500 in 2007 was over 17X vs. 15.6X today.  The market was approximately 22% undervalued relative to the 10 year Treasury rate.  Today the market is 70% undervalued compared to where it should be trading in light of the 10 year Treasury rate.  2007 happened to be the worst case experience in the data set.  There can be much debate about whether either valuation tool is appropriate at this time but suffice to say that neither is signaling over-valuation.  My takeaway is that the achievement of a new all-time high hasn’t been a convincing signal of a market top in the past and likely doesn’t signal a near term top now.  Jeb B Terry Sr. March 5, 2013

Bull mkt extension after new mkt high 3-5-13

(HT to Josh Brown of Reformed Broker).

Aberdeen Investment Management – a guide service for micro-cap technology investment

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