The Twitter Inc (NYSE:TWTR) buyout offer hoax this morning have some believing this is an indication the market is trading at an overbought level. The thinking is investors are taking trading positions based on rumors versus evaluating company facts and company fundamentals. Mark Hulbert, a senior columnist at MarketWatch and the editor of the Hulbert Financial Digest, published an article late this afternoon, Why the Twitter Hoax Suggests the Market is Near a Top.
In the article he notes, “Investors are increasingly resorting to betting on rumors as they become unable to find stocks that represent genuine long-term value.” Mark Hulbert may certainly be right in noting the market is at a top; however, and equally or more important is the analysis of specific stock and market fundamentals. Broadly, from a market perspective, the valuation or price earnings ratio (P/E) of the market, does not seem indicative of an extremely overvalued market.
The excellent J.P. Morgan Guide to the Market, contains a P/E chart for the S&P 500 Index that shows the forward S&P 500 P/E is just above the long term average P/E going back to 1990. Other valuation measures detailed in the below chart also are not indicative of an extremely overvalued equity market. For sure though, the easy money seems to have been made since the end of the financial crisis over five years ago, in the U.S. anyway.
Other technical market indicators also seem to indicate the market is, at a minimum, in a short term oversold level and beginning to move to a higher level. As can be seen in the below chart, the S&P 500 Index has found support at its 200 day moving average and is beginning to move higher over the last three days. Also, the MACD and stochastic indicators have turned positive from oversold levels as well.
Lastly, the percentage of S&P 500 stocks trading above their 50 and 200 day moving averages recently reached levels indicative of a short term oversold market and are now moving to higher levels as the S&P 500 moves higher too.
In investing nothing is a certainty; however, the potential resolution (kick the can) of the Greece situation seems to have eased some of the near term anxiety of investors for the time being. As second quarter earnings season unfolds, a potemntially clearer picture on the business environment will be forthcoming.
The S&P 500 INDEX (INDEXCBOE:SPX) is trading almost flat at 2,110.51 as of 2:19 p.m. EDT today.
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