HSI Long Term P/E Analysis

hhasia and I were discussing the Asian markets in this post of mine: (A Look At Some of the Asian Markets). We also have some long term P/E data to play around with. Here is my stab at some long term P/E Analysis for the Hang Seng.

When I look at the data and trends I see the HSI calling for lower valuations in the future (long term). Could be risk aversion or any number of issues as I have talked about in several posts of mine. The HSI is also heavily weighted in financials, and it is no secret that I am *hugely* bearish on financials.



Also, this is a good time to bring up the concept of long valuation waves. For the US markets, market valuation bottoms / peaks / bottoms in ~35 year cycles. And in US markets, the last bottom in the Dow 30 was in 1981 with a P/E of 6.6 and the last peak was in 2000 with a P/E of 44.2. This is 19 years or roughly half a 35 year cycle. Based on historical trends, the US markets can expect to see lowering valuations (on average, nothing goes up/down in a straight line) until 2016, where it should make a bottom *from a valuation perspective*. (Prices may bottom earlier and stay flat in 2012-2014 while earnings begin to grow. The are a number of scenarios where the valuation bottom and the price bottom are not necessarily the same).

Looking at the HSI chart, we also see a P/E bottom in 1981 of 5.6 and a P/E peak in 1999 of 27.9. These dates are similar to the last valuation bottom/peak in the US Markets. Assuming that the Valuation Cycle will be similar for Hong Kong, then that would confirm some of the long term bearish valuation trends the being observed on the chart above.

Sept 2 - Morning Count Update

Downward wedge has an ending diagonal for a 5th wave. This should resolve to the upside in the next 30 minutes or so.

Count Update - Sept 1

Here are my current short term and micro counts for the SPX. On the short term count notice the last impulse forms a falling wedge, as well as dancing on the the lower downsloping pink trendline. This says to me that tomorrow should be a reversal day, probably up quite a lot. It might try to attack the 1015-1020 area.





Financials.

**LOTS** of bearish developments. The broken GS wedge that I was discussing this weekend is now even more broken. But now we have a broken XLF wedge and the BAC "wedge of death" is now turning into the BAC **WEDGIE OF DEATH** (copyright, binve enterprises, Sept. 2009).... :) (just kidding)

Current Possible Count

My preferred count is still the P2 done count. Here are the current short term and micro counts that I am thinking about.

This is a *Must Listen* Post!

Most of those who read my blog already believe in the validity of the Elliott Wave Principle. Some don't and that's fine too :)

But it is much more than simply wave counts (as you are aware). Social Mood is *key*. This is why I have my Primary 2 checklist (shown below), that I have listed in several of my posts. This is why sentiment is a critical contrarian measure. This is *especially* why government economists are a contrarian measure.

You must listen to this interview with Bob Prechter from King World.

I found it through http://erikmarketview.blogspot.com/2009/08/twilight-zone-bear-etf-crack-down.html. Erik has a great site, definitely read it!.

This interview is the a very good overview of EWP (the book) and a lot of other interviews Bob has given in the past. Specifically he talks about social mood and herding behavior. This is well worth 30 minutes of your time.

Here is my P2 Checklist for review (listen to the above interview and then look at this checklist again):

- X -    VIX Low
- X -    BPSPX (and other bullish indicators) at higher highs than 2007 peak
- X -    CPC at uber-bullish levels
- X -    Investor Sentiment above 80%
- X -    Economists declaring "end of the recession"
- X -    Analysts upgrading everything
- X -    "Speculative Leader" indices showing weakness / bearish divergence
-    -    Clear end count for P2

.... And almost on that last one. Things are certainly in place.