Price Earnings Ratio at Trade10.com- The science of trading market momentum for stocks, options, futures and bonds.

Critical Day Analysis

Our critical day analysis is all about trend reversals. We tell you when there is a high potential for a reversal of the short trend and we've been doing it since 1994 with an 80%* accuracy.

Trade10 Home | Advertisement Opportunities | Recent Signals

Home

QuoteChart Opinion Profile

Enter Symbol:

WALK THROUGH A CRITICAL DAY

OUR SERVICE

MARKETS

UNDERSTAND THE CHARTS

JOIN!!!

Price Earnings Ratio

Price/earnings ration (P/E) is a division of a company's market price over earnings per share. It is an indication of two important factors, the market price and earnings, and displayed in a relationship to each other. Historical P/E values are available and when graphed give a sense of that relationship over time. This can be an indication both of the psychological setting and of economic trend. In looking at past trends both in volatility and in terms market behavior, we gain a stronger basis for looking forward in the market.

A sense of trends develops when looking at a longer graph of the Price Earnings ratio. Notice that during the period since 1983, the P/E ratio has been moving through a series of peaks and troughs trending higher with definite support and resistance levels at the top and bottom. This in reality is a translation of the fundamentals and growth expectations as well as the various economic cycles that effect earnings. Penetration of the lower boundary is a precursor to a much more significant fall in the P/E ratio for the S&P500 Index. Generally that means much lower stock prices. If however during the next time period, P/E finds support at the the intersection with the trendline in blue, and moves up, the prompt will be the realization of favorable global economic growth trends and an expanding global commercialism.

The reverse triangle formation on the P/E ratio started in the early 80's. The chart above shows the S&P500 Index during the most recent period since 1984. The peak in prices in 2000 was also the last peak of the P/E ratio. Notice on the P/E ratio graph the previous peak was during 1992 where price was without major break in the longer term trend in market valuation. Lower earnings were the reason for the peak where price was the reason for the year 2000 peak. The second earliest peak in the P/E ratio occurs in August of 1987. We can look at the graph of the S&P500 Index P/E ratio and determine what valuation levels might find support given earnings and accepted P/E ratio.

To the right technical studies are examined in more detail to provide a sense of conformational evidence for traders of the critical day. Click on any of the terms to take a closer look at a technical discussion on that topic. All formations, patterns, indicators and technical tools fail at various times and so should only be used to build a body of evidence in forming a trading decision rather than being solely relied upon. There are a number of valuable studies that lead to intuitive understandings about price and volume but a strong compliment to technical analysis is an understanding of the trends and changes in the fundamentals and economic activity that ultimately lead valuation levels in the markets.

Walk through a critical day

The graphs show a price plot of the Dow Jones Industrials from Sept 28/00 to early November. The First graph ends on November 3/00, two days before an upcoming critical day on November 7/00. Our members looking at the market are expecting a trend reversal to occur due to the high rate of success in our research. Ideally a member will be using their own skills to judge the supply and demand changes, using technical and fundamental indications to confirm suspicions of a reversal, and trade accordingly.
On the second graph we see that the price action on November 6 was a bullish day, reversing the short trend so that the short trend leading into the critical day is now up. A critical day is an expectation of a reversal of the short trend that immediately precedes the critical day. In the case of the November 7 signal, given to members 3 days before, is an indication that the upward moving trend, recognized at the close of November 6 is expected to reverse direction.
On the third graph we can see that November 7 was a low volatility after a large gain on November 6 of about 160 points for the Dow Jones Industrials. The subsequent move over the three days following the November 7 signal saw the Dow Jones Industrials fall 376 points. The next day, November 13, the Dow Jones Industrials lost an additional 83 points with intra-day low a full 609 point loss since the open on the critical day.

Most recent signals

A closer view of the most recent signals. You can see the short trend immediately prior to a successful critical day, reverses coming away from the critical day. Often a failed critical day will indicate a stronger bias in the market for continuation of the trend that was in place prior to the critical day. A failed signal can therefore provide as much information and opportunity as a successful one. Take a look at tech studies to develop a sense of trend reversals and use.

Tech Studies

Comparative Relative Strength

Congestion Pattern

Consolidation