Turning Points B

I have previously examined P/E10 Sequences on the Scenario Surfer with P/E10=14. My conclusion was that I should start from very high or very low P/E10 levels for estimating turning points.

This time I looked at a P/E10=8 Normal Market. The turning point estimates are not as good as I would like.

Scenario Surfer Conditions

I set the Scenario Surfer to a P/E10=8 Normal Market. I determined how P/E10 varied over the next 20 years.

Turning Points Data

Run 1.
P/E10=14 or higher in Year 5.
P/E10=20 or higher never.
Highest P/E10=19.0.
Year 20 P/E10=8.8.

Run 2.
P/E10=14 or higher in Year 7.
P/E10=20 or higher Year 8.
Highest P/E10=20.6.
Year 20 P/E10=12.7.

Run 3.
P/E10=14 or higher in Year 7.
P/E10=20 or higher Year 9.
Highest P/E10=30.5.
Year 20 P/E10=30.5.

Run 4.
P/E10=14 or higher in Year 7.
P/E10=20 or higher never.
Highest P/E10=17.7.
Year 20 P/E10=13.0.

Run 5.
P/E10=14 or higher in Year 10.
P/E10=20 or higher Year 12.
Highest P/E10=32.5.
Year 20 P/E10=32.5.

Run 6.
P/E10=14 or higher in Year 5.
P/E10=20 or higher Year 18.
Highest P/E10=23.5.
Year 20 P/E10=16.8.

Run 7.
P/E10=14 or higher in Year 12.
P/E10=20 or higher never.
Highest P/E10=17.6.
Year 20 P/E10=7.9.

Run 8.
P/E10=14 or higher in Year 4.
P/E10=20 or higher Year 6.
Highest P/E10=20.9.
Year 20 P/E10=11.1.

Run 9.
P/E10=14 or higher in Year 5.
P/E10=20 or higher never.
Highest P/E10=16.7.
Year 20 P/E10=16.7.

Run 10.
P/E10=14 or higher in Year 4.
P/E10=20 or higher Year 9.
Highest P/E10=24.3.
Year 20 P/E10=11.7.

Data Summary

P/E10=14 or higher in Years 5, 7, 7, 7, 10, 5, 12, 4, 5, 4.

P/E10=20 or higher in Years never, 8, 9, never, 12, 18, never, 6, never, 9.

Highest P/E10=19.0, 20.6, 30.5, 17.7, 32.5, 23.5, 17.6, 20.9, 16.7, 24.3.

Year 20 P/E10=8.8, 12.7, 30.5, 13.0, 32.5, 16.8, 7.9, 11.1, 16.7, 11.7.

Data Analysis

P/E10=14 in every instance. This occurred between Years 4 and 12. The median amount of time was 6 years.

P/E10=20 or higher in 6 out of 10 runs. When it did occur, the median amount of time required was 9 years.

The highest value of P/E10 ranged from 16.7 to 32.5. The middle values of the lowest P/E10 were 20.6 and 20.9. [The median was 20.75.]

The Year 20 P/E10 ranged from 7.9 to 32.5. The middle values of the Year 20 P/E10 were 12.7 and 13.0. [The median was 12.85.]

Conclusions

Using a P/E10=8 Normal Market produces an interesting range of outcomes.

These results include shorter term peaks. They do not always complete a trend.

The market always returned to normal (P/E10=14) but not always to overvalued (P/E10=20).

The market top is most likely to be close to P/E10=20.

By Year 20, there will be a lot of randomness.

Although we can use P/E10=8 Normal Market data to estimate turning points, it is not as good at predicting trends as we would like.

Have fun.

John Walter Russell
February 7, 2009