Who Wants That Setup?
June 1st, 2007 by Buck Woodford
I found this story about the S&P 500’s low, low price-earnings ratio quite interesting. We generally don’t make investment decisions based on macroeconomic factors, but it’s hard not to consider that with historically elevated corporate profit margins, there is some downside risk to the “E” in that ratio. Regardless, calling today’s market “cheap” because its P/E remains below that of 2000’s bubble peak is equivalent to calling a 300 pound man skinny because he used to weigh 500.
Besides, who wants another crash?
At Teewinot, we are not overly bearish the long-term like many gloom-and-doomers. We don’t even have any short exposure to the indexes this very moment. But on an intermediate-term basis, the signs of a top continue to flow.
Dow futures are up 40 points this morning after the monthly employment report release. It’s definitely still an “all news is good news” environment. But — when there’s nary a cloud in the sky, I believe it’s time to be the most vigilant.
We won’t be too anticipatory, but plan to watch closely for a low-risk entry point into an index short sometime today.
