Indeed it is, if technical analysis and historical p/e ratios mean anything.
Those with visions of a Dow of 11,000 dancing inside their heads need to take a step back, for context and perspective, on the likelihood of a Dow push to that level in the near future.
The U.S. economy is in recession, it's shedding jobs, downward corporate earnings revisions are likely, and the world's major economic regions are attempting to re-liquefy credit markets and prevent a global financial crisis from further damaging economies, worldwide.
The above, as CNN Talk Show Host Larry King would say, 'ain't exactly signs of prosperity.'
And the Dow has responded: down more than 30% since hitting its all-time high above 14,000 a year ago.
Keep your eye on 8,500 / 8,200 / 8,000
Earlier in this space yours truly noted that the Dow had technical support at the 8,500 to 8,200 levels, and of course psychological support at 8,000.
As many investors and readers are aware, technical analysts use price and chart patterns to predict stock/index levels. This differs from fundamental analysts, who base predictions on company performance (future revenue, earnings, cash flow etc.) and economic data (retail sales, housing starts, industrial production, etc.). A hybrid analysis uses both, which is the tack favored here.
If the stock market can make it through the financial crisis -- with the resumption of more or less normal credit flows -- and hold the 8,000-level, consider it a moral victory.
Why highlight 8,000? Well, from a technical standpoint, there's more-modest technical support at 7,600, but not much after that, and the hope is that the psychological 8,000-level can protect 7,600.
Little support from P/ E ratio
Further, don't look for any support for the market from the price-per-earnings ratio, or P/E. At the height of the bull market in 2007, the p/e of the S&P 500 was 26. Today it is about 14, which is actually below the post-World War II p/e average of about 17.
However, the problem is, during bear markets (which usually accompany recessions), the p/e can dip much lower, to even 12 or 10. You don't want to know what the p/e fell to during the Great Depression.
Market Analysis: As noted, let's just concentrate on solving the financial crisis and the holding Dow 8,000 at the time of the resumption of more or less normal credit flows. Dow 8,000 doesn't sound like much of an accomplishment, but if history provides any evidence, it truly is.