Is it a Bear Market Rally?

Prechter on Bloomberg, June 19, 2009:

After predicting the last few months of bull market back in February, Prechter is expecting a pullback and then a rally into the summer to complete wave 2 with great crowd optimism that will lead to the wave 3 crash.

Latest Developments in the Stock Market - September 2009

With second-quarter earnings largely in the books (over 99% of S&P 500 companies have reported for Q2 2009), today's chart provides some long-term perspective to the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today's chart illustrates how earnings declined over 92% since peaking in Q3 2007, which makes it easily the largest decline on record (the data goes back to 1936). On the positive side, S&P 500 earnings have moved off their lows – slightly.

Latest Developments in the Stock Market - August 2009
This chart illustrates how the recent plunge in earnings has impacted the current valuation of the stock market as measured by the price to earnings ratio (PE ratio). Generally speaking, when the PE ratio is high, stocks are considered to be expensive. When the PE ratio is low, stocks are considered to be inexpensive. From 1936 into the late 1980s, the PE ratio tended to peak in the low 20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s) and the dot-com bust (early 2000s). As a result of the recent plunge in earnings and recent stock market rally, the PE ratio spiked and just peaked at 144 – a record high. Currently, with 97% of US corporations having reported for Q2 2009, the PE ratio now stands at a lofty 129.

Have We Seen The Stock Market Bottom?
Stock market has rallied from the March lows as predicted, but is it a new bull market, or is it a bear market rally? Elliott Wave International has made intensive research to identify the economic and technical indicators that signal a market bottom. And no, we have not seen it yet.

Here is Bob Prechter, in a recent Bloomberg interview describing the market’s overbought condition.

Prechter has recommended a short at 2007 top, and covered days before March bottom. He predicted a rally that would take DOW to 9000 - 10000 range. Now he thinks the stock market rally is on borrowed time.

Prechter’s book “Conquer the Crash” explains the normal valuations that typically appear at major market bottoms. It also explains what a market top looks like. It is a must read to understand how bubbles form and how they burst. To understand the big picture, please read below his insightful explanation about how big the stock bubble is.

http://www.tradingstocks.net/html/near_bottom.html
http://www.tradingstocks.net/index.html

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