The Wildebeests are Running Again 7-2-2010

The Wildebeests are Running Again . . . When there is panic in the herd there is money to be made.  

“Most people get interested in stocks when everyone else is.  The time to get interested is when no one else is . . .” – Warren Buffett

I have never seen as strong a confluence of indicators in support of a market bottom and prospects for a rally 

  • A record number of consecutive down days in the QQQQ  
  • Extreme oversold market conditions  
  • There has not been a sustained decline in the market when there is strong earnings growth such as seen in the market up to now and expected for Q2.  
  • The earnings yield has not been as strong as now since September 1990 – a bear market bottom. The spread between the earnings yield and the 10 year Treasury rate is the widest since 1979 when the S&P 500 gained 12.3% for the year.  Spikes in the spread such as now have been coincident with market bottoms.  
  • The combination of low Treasury rates and a high earnings yield results in a near record low undervaluation.  We have haven’t seen this low a valuation since December 2008 and March 2009 – the panic lows of the last bear market.  
  • We have not had a recession or a bear market when the yield curve is as steep as now.  

The recent sell off seems to be an extreme reaction.  The next news wave will be earnings related.  There is over $800 billion of cash at S&P 500 companies available for M&A and stock buybacks which increased 80% in Q1 from 2009.  It is normal to expect buybacks to pick up following earnings reports – like those coming up this month.

March 2009, with similar conditions as now, marked the start of a greater than 90% move from the NASDAQ low to the April 2010 high close.  July 2010 could mark the start of a similar move.

Please following link for the complete note and attendent charts.

The Wildebeests are Running Again 7-2-10

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