Keith on BNN
I’m on BNN MarketCall Tonight today, Monday July 8th at 6:00pm. Your best bet to get your questions answered is to call in live on the show (we usually only do a few emails)—tell them you read my blog when you call!
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Once in a while I look at a few key fundamental indicators for an overall feel to the market’s valuation. If you read this blog regularly, or if you’ve read my book Sideways, you know that I’m a fan of Robert Shiller’s Inflation Adjusted PE ratio. As noted in my book, when this indicator gets near 25, it can be a warning of an overvalued market. Bear in mind that this indicator is not a near termed timing mechanism. The Shiller PE can and has remained at or above 25 for extended periods – as it did for the 3 years leading into the 2008 crash.
I’ve posted the Shiller PE chart above, courtesy of www.multpl.com. I must admit that the long termed technical’s are arguing with the Shiller ratio right now. The big picture remains bullish (beyond the potentially lousy summer that I’ve warned readers about for several months now). The uptrend established from the 2009 lows is intact and the 13 year ceiling on the S&P 500 of 1565 has been broken.
A significant breakout such as that noted above cannot be ignored. But neither can a Shiller PE ratio level that has historically proven to lead into market corrections. I’m inclined to stay with my current equity portfolio weighting of 40% cash, 15% non correlated, 45% market exposure. I am also prepared to adjust that weighting at any time if needed.
Interesting that the Russell 2000 and the transports the two so called leaders have made breaks to the upside.
Yes, I saw that. While some leaders have been weakening (interest sensitives & consumer staples), some of the leaders like the small caps remain strong.