P/E: Valuing the Market

Based on 2008 as-reported earnings, the S&P 500, which closed at 756.55, has a trailing P/E of 52. The forward P/E, based on 2009 projected earnings, is 23.4, which is still overvalued from a historic basis. See the attached chart that looks at the 10-year trailing P/E for the S&P 500. At the bottom of the three worst recessions since 1929, the average ratio fell below 10. To reach that, the S&P 500 would have to sink more than 30 percent. I guess the proverbial bottom-line is don't buy just yet! And, don't get lulled into believing the coming market rally is the end of the bear market. As always, listen to what the market is saying. That is, what is our 15-week EMA and 40-week EMA saying?