Monday screencast: perfection denied

abnormalreturns
December 27th, 2010

There are no perfect measures of sentiment or market valuation. Any one who has done even a cursory examination of these two market influences will recognize this reality quite quickly. That does not mean that they are not worth keeping an eye on. However in the midst of a rip roaring bull market or the steep declines of a bear market sentiment and valuation are at best secondary indicators. In short, sentiment and valuation don’t matter until they do. In today’s screencast we take a look at the current state of sentiment and valuation in light of the current market rally.

Items mentioned in the above screencast:

Equity investors are sanguine about the market rally. (WSJ)

How to properly assess sentiment indicators. (A Dash of Insight)

Equity sentiment at week-end. (Trader’s Narrative)

It is never different this time. (The Technical Take)

“While these usually reliable valuation metrics show an excessively or mildly valued market there is nothing in the evidence from the last 20 years that says stretched valuations can’t become extremely stretched.” (Pragmatic Capitalism)

The Morningstar market fair value graph shows a modestly overvalued market. (Morningstar)

A daily price chart of the SPDR S&P 500 (SPY). (Finviz)

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Tickers: SPY