Shiller’s “Top Spotter” goes bearish

Robert Shiller (Nobel Laureate, economist, academic) is one of those Brainiac people who makes me feel like I’m a dummy when it comes to the economy, the markets, and money. But then I listen to Trudeau’s latest blathering about those topics – and then I feel smart again. So it all evens out.

Anyone who’s read my first book, SmartBounce, will recall that I cited Shiller’s CAPE (Cyclically Adjusted Price to Earnings ratio) as a way to estimate market valuation. Basically, the CAPE takes the current level of the S&P 500 and divides it by the 10 year Moving Average of inflation adjusted earnings. It’s considered by many people as a superior alternative to the trailing or forward “PE” ratio most analysts look at. Shiller has taken his CAPE, and compared it with the recent year of earnings growth, and the current one year standard deviation of prices (deviation of S&P 500 price movements). His indicator that resulted from these three factors is called the “Top Spotter”.

You can see the table that  Sentimentrader put together on this indicator below. The signal for a top has occurred 10 times since 1937 – including NOW!

 

 

It’s not always signalled huge bear markets, although in the 9 months to 3 years later column you will see enough significant losses to make one worry a bit! The neartermed pullbacks were more consistent (1 to 6 months later). Only 2014 didn’t have a definable  pullback.

As my son’s hockey coach used to yell – “keep an eye”. Appropriate advice.

BTW–Note the name on the black jersey below!

 

5 Comments

    • Mike–basically just looking to see if, and how far a market correction lasts— any correction should present a buying opportunity but I’d like to see a test of support
      I’ll blog on support levels to watch for if a correction begins.

      Reply
  • Hi Keith,

    Since you are a technical guy, can you comment on Tourmaline TOU.TO and the “cup and handle” formation I believe I am seeing? Would be interested to get your thoughts on how these formations advance and what are the things I should be looking for.

    Reply
    • Carmine I don’t usually do individual stocks on this blog my BNN appearances on Market Call are the time to do that
      But to discuss that formation–as a rule–cup and handles last longer than the formation you see on TOU–yes, it looks a little “round,” but it doesn’t look like a base. A proper cup usually takes place over months, then forms a bit of a small consolidation (the handle) and then needs to break out from there to complete it. TOU’s rally has brought the price back to the downtrend line–its not a big base that has broken the trend. For a good definition of Cup and Handle formations – read my book Sideways.

      Reply

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