Saturday, June 10, 2006


Two more sentiment indicators have given buy signals; the ratio of AAII Bulls to Bears and the SPY Liquidity indicator (thanks for the info from Hays Advisory and the SentimentTrader). It is time to load the boat full of stocks. Short term you may lose but history shows the market should be up strong over the next 9 months to a year. The bond market "highway patrol" has just raised the speed limit! On May 13, the thirty year bond traded at 5.33%. Today it is trading at 5.03%. I understand that .3% does not sound like much but add in the decline in stocks in recent weeks and stock to bond relative value is climbing. At 5.3%, the "fair" P/E ratio for the S&P 500 is 18.8%. At 5.03% the fair value is 19.8%. The projected earnings for this year puts the S&P P/E at 13.9%. Divide 19.8% by 13.9% and you get 1.42 . The stock market is currently undervalued by 42%!!

If you have money to add to your account, you should do so as soon as you can and keep on adding. You can also be a friend by telling a friend that the market is cheap. Warn your friend not to buy the "old" market leaders. A rotation is well underway. Some of the stocks that have not done much in the past five years are going to be market leaders over the next five years! Email me, I would be happy to explain the current important market situation .