Tuesday, May 13, 2014

More Evidence of a Market Top

If you're looking, you can see a continued trend of "tells" that the stock market is topping-out.

See my blog entitled A Stock Market Peak is Probably Near from back in mid-March. There were a lot of good examples in that blog.  Since March, several important indices are at new all-time highs, so it's possible that I am wrong.  While the Dow may be at new highs, the Russell 2000 and Nasdaq are down for the year to date.
 
Fraudulent behavior often accompanies market peaks.   A good example is from Zero Hedge.  The article talks about the price-to-earnings ratio of for the Nasdaq iShares Biotech ETF with the ticker symbol IBB.   It's reported by iShares to have a PE of 41 times.   Jim Grant, a sane and observant scholar and analyst, noted on CNBC that the reported PE of this security is basically a fraud.

Contained in the fine print of the report is the explanation that any security that has a PE greater than 60X is figured as 60X, not the actual PE.   It turns out that only 25 out of 122 companies in the index ETF have price-to-earnings ratio UNDER 60X!   Check this out:

When the actual PE of all 122 companies is used, the actual PE is 82.5 not 41.   The motivation was to "fudge" the numbers and thereby misrepresent, misreport and deceive the investing public.  This kind of fraud goes hand-in-hand with market tops and bursting bubbles.

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