Humour is a great tool in stressful situations.
Yesterday saw the biggest one-day fall on the ASX in two years and Australian traders woke this morning to learn that the chair of the US Federal Reserve, Janet Yellen, had said overnight that “equity valuations at this point are generally quite high”.
Yellen added: “They’re not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low, but there are potential dangers there.”
In a note to clients this morning, Deutsche Bank managing director Glenn Morgan said we hadn’t seen such “blatant stock broking from a Fed Chair since Alan Greenspan made his ‘irrational exuberance’ comment in 1996”. Zing!
But he added: “Janet makes a fair point, though. The S&P 500 is trading a full three PE points above the five year average.”
Morgan noted a chart he’d seen which attempted to show recent market tops on the S&P500 were spread 1897 days apart and showing we’re now at the end of the next point in that cycle. Which prompted this:
I usually put this sort of analysis in the same bucket as astrology and tarot card reading, but I had a technical look at our own market and was also alarmed with what I saw. Do you see what I see in there? A Patrick Star gave way to a half-Batman and then yielded to a full Bart Chart. Janet Yellen is right – there is nowhere to go but down from here.
Morgan’s point, brilliantly made, is there are a lot of explanations for what’s happening in the market at the moment that don’t necessarily stack up.
But as Greg McKenna noted this morning, the ASX did break through the bottom of its 2015 trading range yesterday. And at 5,692 last night the ASX200 is just 30 points above the level it couldn’t beat in 2014. Whether they fit cartoon characters heads or not, these are the kinds of technical breaks traders don’t like to see.