Stocks & Commodities V. 31:7 (8–9, 62): Letters To S&C by Technical Analysis, Inc.

Letters To S&C by Technical Analysis, Inc.

PE RATIOS AND MARKET SECTORS

Editor,

I read with great appreciation your monthly issues. I got “sucked in” with your sample issues, and what great articles there were in those samples (for example, Teresa Fernandez’s “Dogs Of The Dow”; Trent Gardner’s “Using VIX To Forecast The S&P 500”; Ron McEwan’s “Lunar Cycles And Stock Market Volatility”; and the latest article by Mark Vakkur, “Sell In May And Go Away”). Keep them coming — they’re thought-provoking!

As for Vakkur’s latest, “Sell In May” — why, I wonder? It appears that buy & hold from December 1979 at 107.9 through December 2012 at 1426.2 would yield fully as good with no selling but with dividends, when available. Great article!

Now I would like to see greater information about PE ratios for the 10 market sectors, for example, the Case- Shiller CAPE (cyclically adjusted price earnings) ratio and its effect on those sectors. Does the PE ratio reveal highs & lows (which may indicate tops & bottoms and market in & out information)? If so, it could be one more indicator to help investors.

Thanks for a great magazine. Awaiting your next issue.

Bill

Thank you for your comments. We appreciate feedback from our readers.

As for Vakkur’s May 2013 article: It is true that the market has an upward bias over time, and buying & holding over long periods is usually a profitable approach. But the point of the article had more to do with testing this market adage. Rather than simply assuming the truthfulness of oft-repeated market sayings, technical analysts prefer to test them to try to find out whether they are actually reliable and have proved to be true, at least on historical data. Further, since not everyone can buy & hold for three decades (!), or for those who prefer a shorter-term style of investing, a study such as this one on timing and seasonality can be helpful.

Finally, it can be useful to compare a simple buy & hold approach to timing methods over long periods to find out whether buy & hold can be improved on and made more profitable by adding timing techniques. Subscribers can find several articles on this topic in the article archives at our website, Traders.com.

For more on the topic of buy & hold and how to know when may be a good time to sell long-term holdings, see the article by Thomas Bulkowski in this issue, “Trading Buy & Hold.”

As for PE and CAPE: One recent article we’ve published on this topic is “A Fundamental Lesson For The Technically Minded” by Matt Blackman, which you’ll find at our website at http://premium.working-money.com/ wm/display.asp?art=841 (or navigate to this article by going to our homepage at Traders.com, then click on “Working Money” toward the top; login is required).

—Editor