While the entire article is well worth reading, I think this excerpt from John Hampson's weekly update issued yesterday prior to the open is worth highlighting.

Quote:

Fourth is the secular position for equities. Recall that my charts comparing historical secular stocks bears reveal that at this point stocks are unlikely to see much lower in nominal terms again, and that we should be looking upwards to stocks, not down. We should see a rally in stocks here, which is also supported by presidential cycle seasonality, but which ends before the commodities final mania ends. There is an interesting situation with European equities, whereby they have reached their secular bear valuation buy signals at this point.

This table is from Goldman Sachs taken in mid-May, showing the cyclically-adjusted P/E ratios for key countries:


Source: Goldman Sachs

Historically, a secular bear ends when CAPE reaches below 10. You buy at that point and are rewarded for the next 10 years with an average return of around 15-20%. Furthermore, very good buy opportunities have arisen when FYPE (forward earnings valuation) exceeds CAPE. As you can see, Spanish and Italian stocks are well below 10 and the FYPE exceeds the CAPE too.

For reference, the lowest CAPE historically that we have ever seen was 3, reached by both Thailand and Korea. Guess what? Greece has now beaten that with a CAPE of sub 2. So, with some confidence we can say that buying Greek, Spanish and Italian equities at this point is likely to pay off handsomely over the next 10 years, but clearly the risk is for more downside before the upside eurupts.

Here is the chart again showing that the p/e for Germany is back at the last secular lows.


Source: SG

Here we can see the Eurostoxx index has made a third major low in this secular bear market. 3 major lows have defined historic secular bear markets, before a new secular bull erupts.


Source: Scott Grannis

Here is the UK cyclically-adjusted P/E. It is also back to where it was at the similar point in the last secular bear (around 1979). I note that it made its nominal low in the middle of the last secular bear, which looks a little different to the equivalent US chart which made its p/e low at the end.


Source: SG

Of course not all stock indices around the globe will peform the same. Not all stock indices will end this secular bear market with CAPE under 10. Here is Japan’s chart:



Source: Vector Grader

In the last secular bear, Japan’s ending CAPE was around 20. This may be accounted for by it being a leading index then, going on to its amazing peak in 1989.

Is the US the leading index now? Could we have bottomed with the US at CAPE 20 and European stocks in single digits? Well I think not yet, but we are getting close. I believe some other major indices need to drop beneath CAPE 10, not just the PIIGS, but we can see the likes of the UK and Brazil are close. I believe that more comprehensive drop beneath CAPE 10 will occur with a bear and recession following next year’s commodities finale. But the likes of Spain and Italy are so cheap now that I wonder whether they may now go on to outperform, and not look back. It’s either that, or they go on to join that club of the cheapest CAPEs ever. Clearly we need some more enduring and satisfying policy responses in Europe to enable them to rally sustainably, but at the same time once we have those in place, European stocks are likely to be much higher.

In summary, I think the message is clear that we are reaching towards the end of the secular stocks bear in terms of valuations. I don’t believe we need to see US stocks halve in order to reach under CAPE 10, as we can see from the range of ending CAPEs in the last secular bear. I expect that once we see the likes of Germany, Brazil and China under CAPE 10 we are done, and I expect that point to come next year or the year after, in a cyclical bear following a commodities mania conclusion linked to 2013's solar maximum.

S O L A R C Y C L E S
With John Hampson

http://solarcycles.net/2012/06/15/market....

My latest investment "theme" has been invest like it's 1990.

To me, a contrary, it's trying to see the trees in the forest, and there are several, at last count.

Quote:

Historically, a secular bear ends when CAPE reaches below 10. You buy at that point and are rewarded for the next 10 years with an average return of around 15-20%. Furthermore, very good buy opportunities have arisen when FYPE (forward earnings valuation) exceeds CAPE. As you can see, Spanish and Italian stocks are well below 10 and the FYPE exceeds the CAPE too.

Historically, by what timeframe? There's an asterix on the Goldman (Table 2) chart that, I would guess, footnotes that information. Didn't see it in the linked, however.

20th century is over. Any correlations with it are largely irrelevant. Not saying he isn't correct, just saying that when people use the word "traditionally", the time-frame they are referencing is historically quite small.

I could be wrong but, in the middle of a protracted and worldwide balance sheet event, I'm having trouble believing that China's CAPE at 14.3 and India's at 16.3 are, respectively, -19% and -27% within any meaningful historic timeframe.

Historical perspective and then some, for those who want to get "wonky". ;-)

http://www.vectorgrader.com/indicators/c....

http://www.ritholtz.com/blog/2010/02/wha....

If average multiple is 20ish, then iconic brands selling between 10 and 15 times earnings are relatively cheap.

N/not investment advice, just saying...

Quote:

"You're getting it for nothing, you're getting the land for nothing, you're getting everything for nothing. You have to sit with it for a while, but there are a lot of great opportunities in Europe. There's no question about it."

"I'm actually looking at something — it's so ridiculous, it's laughable — and yet I'm thinking about doing something over there with a group that is very smart, and frankly there is an opportunity."

-Donald Trump; CNBC Interview http://www.cnbc.com/id/47871682

If you can get beyond the CNBC nonsense like the voucher plan for Germans to vacation in Greece mentioned by the FT correspondent, then you'll probably glean something from the interview. I don't agree with Trump's assessment that the Euro will break up - I think there are more than a couple of variables out there that might work against that, like Germany finally coming to terms with the idea that you can't have your cake and eat it too (good article here by Charles Gave - inside the John Mauldin article - that unwittingly covers in graphical manner just who has benefited most from the Euro, and just how ugly a break-up would be for that country; yes, I'm talking about Germany http://www.marketoracle.co.uk/Article351.... ).

Continuing with this thread’s “value buy signals” theme, I thought I’d use the IBEX-35 as a case study backing up the fundamentals with technical analysis.

I’ve done a lot of talking about the Spanish political scene, the Spanish macroeconomics, the valuations and yields for the IBEX “big boys”, in a word, about the Spanish fundamentals (here’s one such example from the first of June http://albertarocks-ta-discussions.blogs.... and you can find a bunch more here on TF), and I think today is an appropriate time to bring the IBEX-35’s technicals front center since it is in those same technicals where we are/were able to find clues for the price action that came about today, and that the news media is now going to try to explain after the fact.

Normally, multi-timeframe technical analysis starts with the larger time frame, but on this occasion I am going to invert that process in order to highlight the importance of longer term levels.

First I want to start with the basic price pattern on the daily chart where we find a nicely defined inverted head and shoulder pattern. (The majority of the world’s most important equities indices currently show some sort of bottoming pattern, be it an inverted head and shoulders, a rounding bottom, a double bottom - or any of the same that have already broken out and have just completed snapbacks to neckline support.)



Second, the 1-2-3 reversal setup. This too demonstrates a reversal on many other indices as well as on the IBEX (by the way, the exceptions are very telling if you’re interesting in getting a feeling for where future relative strength and weakness may lie).



My third chart shows the current setup for Fibonacci trend analysis that is well developed and heading for immediate targets (price can and does blow out of those targets so don’t be looking to short them). There was lots of time to get on board at the 6500 level 50% retrace, and I’m confident that value investors were doing just that. The same is found on just about all of the 25 major indices I follow.



Forth: Gann rule of 3: if the third attempt to take out a support or resistance level is not successful, beware of the possibility for a violent reaction in the opposite direction.



The Fifth chart focuses on momentum and trend.



My next to last chart moves out to the weekly timeframe where we see a clear momentum shift on the larger timeframe that further supports what’s happening on the daily time frame. (Again, as with all these examples, there are many similar cases to go around on other indices.)



Where is all this happening? The answer to that question is why I wanted to invert the process. ;-) Check back on your favorite index to see where this is happening at in your neighborhood.



When you find these many conditions that meet at key support (or the inverse with resistance), you’ve got a fairly high probability trade. What comes next is your entry and risk management of course.

KD mentioned in a recent video the idea of writing down the trade before you enter it. If “X happens then I’ll do Y” was the gist of it. Since I scale in and scale out, I take that a bit further and for me it looks like if 3 conditions meet, then I’ll go in 1/3, and if 4 meet, etc. This TA “presentation” pretty much shows an “all conditions met” for and “all in” trade (which means that the scaling in would be done and you’d now be looking for where to start scaling out – swing trading that is – and if late to the party . . .).

With these kinds of technicals staring us in the face, one finds it difficult not to assign fairly high probabilities to a continued advance higher. Indeed, based on the preponderance of evidence, I would suggest that one should be expecting it.

Lastly, I’d like to suggest going back and taking another look at the charts paying special attention to today’s gap and go. (This too was seen on many indices today.) I would classify today’s gap as a daily breakaway gap. Perhaps I’m wrong, but as I just mentioned a few lines above, this is a probability game, and since the probabilities are high that it is a breakaway gap, I’m inclined to label it as such until proven wrong. I also think the probabilities are high that we see a weekly breakaway gap on Monday. We’ll only have a couple of days till we find out.

And with that quick run down on the technicals for the Spanish stock market, I'll once again leave you with the underlying fundamentals.