The Stock Market’s 1959 Top

Peter Eliades, editor of the Stockmarket Cycles newsletter points out, that stocks have just reached another high… in the NYSE Advance/Decline ratio, attaining levels not seen since 1959.

The big question, of course, is does an indicator remember where it was almost 50 years ago and does it make any difference if it does or not. An even larger question might be whether the ever-growing number of interest rate related issues on the New York Stock Exchange has somehow distorted the historical accuracy of this indicator.

We do not claim to have the answers to those questions but based on all the other technical information at our disposal, it would not surprise us to see the cumulative advance/decline ratio stall at these levels.

Will they pass these highs and what does it all mean? Eliades is not sure. Looking through my folder of charts I noticed a few things.

1) The year 1959 was dead in middle in of a long Bull market that ran until 1966 taking the Dow from 600 to over 1000. By contrast we are in the midst of a Bear market – off from one of the longest and largest Bull markets in just about every definition a bull market may be attained, i.e., earnings, P/E ratios, credit, interest rates, etc.

2) This is easily demonstrated in the ratios of Dow/Gold or Dow/Silver, both of which confine stocks as an asset class to a definite ongoing decline. The Dow/Gold ratio currently stands at 19, down from its 2000 high of 41, the highest ratio in over a century including 1929. In the Dow/Silver ratio, currently at 915 down from its 200 high of 2,545, we see that the Dow remains in fairly overvalued territory. Each high above 1000 since the year 1800 has resulted in a decline of over 40% in value.

3) In 1959 the S&P500 was valued at only 14 times earnings destined to reach just 20 times earnings in 1965. By contrast the S&P currently supports prices 18.5 times earnings and has been declining ever since its 2000 highs of over 30.

4) In regard to asset classes of the times, in 1959 we saw stabilizing Real Estate prices since its highs in 1947 surge after WWII. In 2006 we see an already threatened market that has surged by over 50% nationwide just over the past 6 years (after great stock gains and easy credit?). Similarly commodities and gold were in a bear market in the late 50s while today they seem to be in a strong bullish trend due to supply and demand factors as well as a bearish stance on the US Dollar.

So what does this mean for stocks? No one seems to be sure, but what many are sure is that regardless of how you cut it lower stock prices seem in the cards… unlike 1959.


Source:

The Stock Market’s 1959 Top
Peter Eliades
February 16, 2007

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