PE at Market Bottom

Reason being, the 2009 low did not represent a value low as has been seen at all other secular bear market bottoms. That value is representative of the dividend yield being roughly equal to the P.E. ratio. It is a fact that at true secular bear markets the dividend yield and the price earnings ratios will be roughly equal. As an example, in 1932 the yield on the S&P 500 was 10.50% and the P.E. was just under 10. In 1942 the yield was 8.71% and the P.E. was 7.3. At the 1974 bottom the yield was 5.9% and the P.E. was 7.24. Even at the 1982 low the yield was 6.2% with a P.E. of 6.9. At the March 2009 low the P.E. was 23.77 with a dividend yield of 3.58. At the October 2002 low the P.E. was 29.95 and the yield was 1.98. As you can see, neither the 2002 low nor the 2009 low represented the great values that have been seen at previous secular bear market bottoms.

Market Update | Tim Wood | Safehaven.com

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DEBT TO GDP

"While fiscal problems need to be tackled soon, how to do that without seriously jeopardising the incipient economic recovery is the current key challenge for fiscal authorities."

They start by dealing with the growth in fiscal (government) deficits and the growth in debt. The US has exploded from a fiscal deficit of 2.8% to 10.4% today, with only a small 1.3% reduction for 2011 projected. Debt will explode (the correct word!) from 62% of GDP to an estimated 100% of GDP by the end of 2011. Remember that Rogoff and Reinhart show that when the ratio of debt to GDP rises above 90%, there seems to be a reduction of about 1% in GDP. The authors of this paper, and others, suggest that this might come from the cost of the public debt crowding out productive private investment.

Think about that for a moment. We are on an almost certain path to a debt level of 100% of GDP in less than two years. If trend growth has been a yearly rise of 3.5% in GDP, then we are reducing that growth to 2.5% at best. And 2.5% trend GDP growth will NOT get us back to full employment. We are locking in high unemployment for a very long time, and just when some one million people will soon be falling off the extended unemployment compensation rolls.

Government transfer payments of some type now make up more than 20% of all household income. That is set up to fall rather significantly over the year ahead unless unemployment payments are extended beyond the current 99 weeks. There seems to be little desire in Congress for such a measure. That will be a significant headwind to consumer spending.

Government debt-to-GDP for Britain will double from 47% in 2007 to 94% in 2011 and rise 10% a year unless serious fiscal measures are taken. Greece's level will swell from 104% to 130%, so the US and Britain are working hard to catch up to Greece, a dubious race indeed. Spain is set to rise from 42% to 74% and "only" 5% a year thereafter; but their economy is in recession, so GDP is shrinking and unemployment is 20%. Portugal? 71% to 97% in the next two years, and there is almost no way Portugal can grow its way out of its problems.

Japan will end 2011 with a debt ratio of 204% and growing by 9% a year. They are taking almost all the savings of the country into government bonds, crowding out productive private capital. Reinhart and Rogoff, with whom you should by now be familiar, note that three years after a typical banking crisis the absolute level of public debt is 86% higher, but in many cases of severe crisis the debt could grow by as much as 300%. Ireland has more than tripled its debt in just five years.

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Elliott Wave price projections - Summary table

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S&P 500 Ten Year Forward Real Returns based on PE

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Trend Following

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10 Penny Stock Websites You Need To Know For 2010

1. Reaper Trades

2. Investors Live

3. Pink Sheets

4. Stock Promoters

5. Stock Reads

6. The Technical Trader

7. Investors Underground

8. Kabam

9. InvestorsHub.com

10. BoardCentral.com

http://www.timothysykes.com/

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Get Creative With Alternative Weighting ETFs

Alternative #1:
Equal Weighting

This approach is strikingly simple: Just divide the money between all the stocks in an index equally. If your index consists of 50 stocks, each one gets 2 percent.

Equal weighting treats all stocks the same.

Equal weighting was pioneered by Rydex, which offers a series of ETFs using this methodology. Rydex S&P Equal Weight ETF (RSP) owns the same stocks as the S&P 500 but with equal-weighting rather than cap-weighting.

Comparing SPY vs. RSP reveals how big the difference in returns can be ...

In the first eight months of 2009, SPY (including dividends) was up 15 percent. RSP gained 29 percent during the same period.

How does this happen?

The smaller-cap stocks get a bigger weighting in RSP than they do in SPY. And those stocks have done generally better this year than most of the mega-cap issues. This isn't always the case. But equal weighting clearly had a huge positive impact so far this year.

In addition to RSP, here are some other equal-weighted ETFs you might want to consider:

• SPDR S&P Biotech ETF (XBI)
  
  
• First Trust Nasdaq-100 Equal Weighted Fund (QQEW)
  
  
• SPDR S&P Semiconductor ETF (XSD)

Alternative #2 and #3:
Dividend and Earnings Weighting

If you love income, then you'll probably want to tilt your portfolio toward the stocks with a record of growing their dividends. So take a look at the ETFs offered by WisdomTree.

WisdomTree argues that, by design, cap-weighted ETFs are forced to buy high and sell low. Here's why that's true:

The higher a stock's market capitalization (shares outstanding multiplied by the share price), the more shares a cap-weighted ETF buys. If those share prices decline, the market capitalization of the stock declines as well. Consequently, they are replaced with higher-cap stocks when the ETF rebalances its portfolio.

WisdomTree's solution is a set of indexes that use fundamental factors like dividends and earnings to allocate among stocks. They think this will lead to better long-term results, and they have a lot of research to support their point.

Fundamental factors are more objective than stock prices.

One advantage of this approach is that dividends and earnings are much more objective than stock prices as a way of measuring a company's success. We've all seen stocks launched into orbit by irrational investors chasing surging stock prices, only to come crashing back down.

Dividends aren't so easily manipulated. And screening for companies with consistent earnings can help weed out the money-losing and speculative ones.

WisdomTree has a whole family of ETFs that follow variations on this theme. Some of the most popular are:

• WisdomTree Dividend excluding Financials (DTN)
  
  
• WisdomTree India Earnings Fund (EPI)
  
  
• WisdomTree Emerging Markets SmallCap Dividend (DGS)

Alternative #4:
Revenue Weighting

Another methodology is offered by a company called RevenueShares. The name gives away their strategy: Stocks in their ETFs are weighted by revenue.

Revenue is even more resistant to manipulation than earnings. In accounting lingo, it's the "top line" of money coming in. Public companies are required to disclose it in their SEC filings, so the information is readily available.

Revenue is what makes companies grow.

RevenueShares says that weighting stocks by their revenue can deliver attractive returns over time. Though of course it doesn't mean their strategy will work all the time. Here are some of the best-known RevenueShares ETFs:

• RevenueShares Small Cap (RWJ)
  
  
• RevenueShares Mid Cap (RWK)
  
  
• RevenueShares Large Cap (RWL)

Alternative #5:
Combinations of Fundamental Weightings

Alternatives #2 — #4 discussed above are sometimes referred to as fundamental weighting. Rob Arnott, of Research Affiliates, has created fundamentally weighted indexes using a combination of factors such as sales, book value, dividends, and cash flow. And he has teamed up with FTSE to offer the FTSE-RAFI indexes.

Some of the ETFs using this approach include:

• PowerShares FTSE-RAFI US 1000 (PRF)
  
  
• PowerShares FTSE-RAFI Emerging Markets (PXH)
  
  
• PowerShares FTSE-RAFI US 1500 Small-Mid (PRFZ)

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Trading Secrets

• US Presidential Cycle Strategy. 100% track record is to buy a Dow Jones Industrial Average Index on 1Jan of the third year and keep the position until end of the year.
  

• 2nd trading strategy is buy the S&P500 index on 1 Oct in the second year and hold then this position open until the end of Dec in the fourth year.
  

• 3rd trading strategy is buy S&P 500 index on 1 June and sell on 31 Dec , 13 of the past 14 presidential terms positive return.
  

• Buy a S&P 500 index two days before Rosh Hasanah or St Patrick's and close the trade out the day after this holy day.

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US Bear Market Bottoms

• Trend 1 : The History Books.Uncanny knack of bottoming out in Oct. Second markets simply not end in the fifth year of the decade.Howerver a bear market likely end in second or eighth year of the decade.Since 1932 , the average length of bear market is around 12 months, the average drop in those 12 months is 26%.US market has a habit of bottoming out in the first or second years of the presidential term.

• Trend 2 : Rock bottom valuation .PE falls of around 10.http://irrationalexuberance.com/

• Trend 3 : Extreme volatility and negative investor sentiment. VIX Index in range of 40-50.

• Trend 4 :The 200 MA test. Fall way below 200 MA. If you bought the S&P every time if fell 20% below it 200MA in the past 33 years, than a month later you would have been in the profit of average gain 10%.

• Trend 5 : Early signs of economic improvement. When copper hit bottom, automotive sales start to rise and inventory levels are low.

• Trend 6 : Bond Market Rally.Government bonds and corporate bonds rally on average 10 and 4 months before equity markets finally hit their bottom.

• Trend 7 : McClellan Summation Index. MSO below minus 500.http://www.mcoscillator.com/

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Bull Market Top 15 Leading Indicators

1. Equity inflows into mutual fund spikes. http://www.trimtabs.com/site/index.php
2. Volatility index at low between 20 to 10. http://stockcharts.com/h-sc/ui?c=$vix
3. Advancing/declining stocks. http://stockcharts.com/def/servlet/Favorites.CServlet?obj=msummary&cmd=show&disp=SXA
4. Coppock indicators. http://www.investorschronicle.co.uk/MarketsAndSectors/Markets/article/20090706/a5f06932-6a33-11de-9d12-0015171400aa/Stable-doors-and-horses.jsp
   
5. Economic  cycle and presential cycle. Bull cycle all start between 3 to 8 months before the start of pre-election years.
6. Bull Market corrections normally 10%.
7. US recession average 10 months, longest last 16 months. When monetary policy being tighten and oil proce increase, the US has fallen into recession.Inverted yield curve.
8. Sentiment indicators - put/call ratio. http://stockcharts.com/h-sc/ui?s=$CPC
   
9. Sentiment Indicator - financial advisers surveys.http://www.investorsintelligence.com/x/default.html
10. US consumer confidence. Extremely bullish 115, bearish below 75, Y2008 years low is 38. http://www.conference-board.org/
11. IPO markets and M&A activity.
12. Dow Jones Industrial Average/Nasdaq index ratio. Low ration mean investors more aggressive.
    

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