This article presents the shape of the price change frequency distribution for the S&P 500 over approximately six decades on a daily basis, monthly basis and calendar year basis.

The degree of “normality” of S&P 500 price changes is high on a daily basis — it’s visually symmetrical.  The average change of 0.03% is less than the median change of 0.05%.

The monthly distribution is not as visually smooth or symmetrical, but presents a “pretty” good bell shaped curve.  The average change of 0.67% is less than the median change of 0.91%.

The calendar year distribution requires a bit of squinting and some imagination to see a bell shaped curve — making it “sort of” normal looking.  The average change of 8.02% is less than the median of 9.76%.

The most extreme outliers, as measured by standard deviation, are at the daily level, then monthly and lastly calendar year.

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In our last article, we estimated the probable price range of the S&P 500 based on historical and implied volatility, and suggested that the positive area of the range was more likely than the negative area for the next few weeks, because of the moving average trend indicators and the declining volatility of the 1-month and 3-month CBOE volatility indexes.

We also expressed our concern that we could not assess the myriad economic data and opinions to draw a convincing fundamental argument to support those technical conclusions.  The fundamentals are mixed and the global condition may be delicate, with potentially major geopolitical risk in the background (Pakistan/Taliban and Iran/Israel in particular).  The rewriting of the rules of capitalism in the U.S and the still looming foreclosure situation are not encouraging.

Overall, we see very roughly +/- 9% change potential in the S&P 500 by 12/31/2009, unless

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There were some substantial price moves today for many country and region funds.  How do they look now relative to their 200-day simple moving averages?

The chart below shows the ratio of the price to the 200-day average, and the 100-day average to the 200-day average, for 35 country and region funds as of end-of-day August 17, 2009.

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The ratios are color coded: green for > 1.10, yellow for < 1.10 > 0.90, and pink for < 0.90.

Not shown in the chart is the fact that all of the funds have some degree of upward sloping 200-day simple moving average, except for the U.S. which is flat, Italy with is flat with a hint of up, and GCC countries which are sloped down.

Approximately 1/3 of the funds have the price above their 25-day average, while

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If the consensus earnings estimates coming out of Standard & Poor’s and “the Street” (via Thompson Reuters) are realistic, then it looks pretty good for a stable to rising market value.  We say value instead of prices, because price and value don’t always coincide.

At 923 the S&P 500 is about 12 times the 2010 $74.10 forecast for the S&P 500 operating earnings by Standard and Poor’s, or the $74.48 forecast by “the Street” according to Thompson Reuters.  Barron’s reports a Capital IQ survey of six strategists’ forecast of $68.45 for 2010, making today’s 923 index price about 13.5 times 2010 operating earnings.

Actual S&P 500 operating earnings in 2007 and 2008 were $82.54 and $49.51.  That puts $74 at almost 90% of the 2007 earnings level — quite an amazing and surprising expected accomplishment given all we’ve been through.

S&P forecasts $55.61 operating earnings in 2009 for the S&P 500, while “the

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Are emerging markets leading the developed markets forward, or following their lead?

The answer may depend on when you start the observation.

Two key asset classes are stocks and bonds. Let’s look at total stocks and sovereign bonds for each of the United States, the non-US developed markets, and the emerging markets to see how they are doing.

The sovereign bonds in the non-US developed markets are denominated in local currencies, while the emerging market sovereign bonds are denominated in US Dollars.

This daily chart beginning March 6, 2009 shows emerging market stocks and sovereign bonds handily outperforming their counterparts in the United States and the non-US developed markets.

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On the other hand, this 1-year weekly chart shows emerging markets stocks and bonds still underperforming US market and just catching up to the non-US developed markets.

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Goldman Sachs coined “BRIC” for Brazil, Russia, India and China.  Some commentators have recently suggested that Russia’s stocks are too volatile, economy too fragile and politics too hostile to capital, and that maybe “BIC” is more attractive.  Based on the recently released forecast for GDP growth by the World Bank and the OECD, maybe “BICI” will become popular (Brazil, India, China and Indonesia) someday.

Actually, we don’t expect that to happen as a product phenomenon (although it may become a theme), but we do take note of the GDP growth ranking of Indonesia higher than Brazil and just behind China and India.  Indonesia is a very small market and its country funds have quite limited trading liquidity.  They have a long way to go to be in the same class as the BRICs for “investability”.

Country GDP Growth Outlooks:

The following table presents historical, estimated and forecasted GDP growth rates for selected countries

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Everybody has a different stock / bond /cash allocation that is best for them.   Whether the selected equity allocation is high or low, we think over-weighting emerging markets and under-weighting developed markets within the allocation is the better long-term strategy for long-term investors — except for investors currently relying on, or about to rely on, their portfolios for life style support for whom the volatility may not be appropriate.

Much is being made of the fact that the key US equity indexes are near or slightly above their year-end 2008 level.  That is clearly better than not, but year-end 2008 was at a sorry level compared to year-end 2007.

These charts may help keep wider perspective.  They are three-year daily percentage performance charts that also show the 200-day simple moving average (a commonly used measure of the primary trend) and the year-end 2008 level.

The first thing you may notice is that exceeding

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As we listened to Bloomberg all day, we lost count of the number of times anchors or guests said the market has gone “too far, too fast” — it sounded like group think and crowd behavior.  While we do tend to agree with the assessment and have said so before today, it lost all effect after hearing it a thousand times.  Everything that happened today probably cannot be effectively explained by that single crowd mantra, except for a domino effect that one market may have on the other.

Let’s look at the data to see how “how far, how fast” different asset types have moved in this rally.

To do that we generated the following charts that show the percentage price change, the RSI and the ROC for a variety of stock and bond funds.

RSI (Relative Strength Index) is an oscillator (as opposed to trend follower) plotted on a scale from 0

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It was the bank reports of good earnings (albeit much of a one-time nature and based on yield spreads that cannot go on forever) that started and continued to fuel this rally.  But how valuable are questionable improvements in earnings at the same time that shareholder dilution is around the corner, as this article would lead one to imagine:

April 20, 2009 (Reuters) Obama administration officials have determined they can avoid asking Congress for more bank bailout funds by converting existing loans to the largest U.S. banks into common stock, The New York Times reported on Sunday.

… Converting the loans to the 19 biggest U.S. banks into common shares would turn the government aid into available capital and give the government a large equity stake in return, the newspaper said.

Some critics would consider the option a back door to nationalization since the government could become the largest shareholder in several

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How does the current stock markets rally look around the world?  These ten charts show a global rally with more leadership in the emerging countries.

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Charts shown are:

VT: total world stock markets VTI: total US stock market VEU: total world ex US stock markets VGK: European developed stock markets VPL: Pacific developed stock markets EEM: Emerging stock markets EWZ: Brazil stock market RSX: Russia stock market INP: India stock market FXI: China stock market

The superior performance of the emerging markets is more clearly seen in the two following charts which plot percentage change instead of price.  The first chart plots the world and developed markets against the S&P 500 weekly for six months.  The second chart plots the emerging markets index and the BRIC countries against the S&P 500.

World and Developed Markets

Emerging Markets

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