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Thursday, January 5, 2017

Daily update 1/5 Price/EBITDA

Hmm.  Not a great day.

There was a mid day sell off that had a couple of -1000 NYSE tick readings.  That shows real selling pressure.  The last time we had ticks that negative was 12/14 the day after the SPX high.  That clearly indicates we still have some resistance in this area.  How stiff that resistance is I cannot say.  It might be significant since it came from roughly the same area in SPX.  The selling was worse in the transports, financials and small caps.  Those were the strongest indexes off the Nov. low.  Somebody was taking profits.  We will have to see if that action inspires others to sell or not.  Breadth was -54%.  New highs slipped a bit to 123, but were still pretty good.  New lows were under 10 again at 7.  Bounces off the 20 DMA that fail to make new highs or just barely make new highs are usually subject to more selling pressure.

The futures stalled at the upper channel line.  This bounce is not off to a great start so far.

The red count recrossed the green count today.  That is not a very good show of strength by the bulls.  The buying has been pretty tepid since mid Dec.  That same action (green count staying below 50) happened back in Aug.  It eventually led to the pullback into the Nov. low.  It is not really a great pattern for the bulls.

Last night I thought SPX would end up making a new high.  Maybe it will yet, but I am a little less confident of that now.  A failure here probably indicates a trip to the 50 SMA is in the works.  The low VIX might be keeping some buyers on the sidelines. 

Here is a valuation method  not commonly shown, but makes sense (at least to me).  What Happens Next?

U.S. stocks have become too costly for mergers and acquisitions, according to Niels C. Jensen, chief investment officer at Absolute Return Partners LLP.

As Bloomberg reports, the U.K.-based investor cited the S&P 500 Index’s ratio to earnings before interest, taxes, depreciation and amortization, or Ebitda, in a monthly letter published Tuesday...

"Interesting M&A deals are likely to be few and far between" with the price-to-Ebitda ratio at more than 11, he wrote. The indicator peaked at 11.35 as an Internet-driven bull market of the 1990s was ending... it's at 11.27 today!!

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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.