Looking at the Nifty over the last five years shows you where we are today, relatively speaking. The current day P/E (trailing twelve months) is at 17.2, which you might think is low, but consider this:
The EPS of Nifty on 13 Jul 2007 (five years ago): 208.25
The EPS of Nifty on 13 Jul 2012: 303.91
Growth rate: 7.9% per year.
Consider also that our P/E has been above 12 for the most part. Markets have absolutely no idea about growth, and even in the face of reality, will stay ridiculously overvalued if they want to. (Let’s also temper this conclusion with the fact that trailing P/E is standalone, and consolidated P/E is a bit lower) At the same time, valuations will stay ridiculously low on the other side of the spectrum as well, if that ever happens.
(Click for larger pic)
Negatives: The Nifty has stayed below the Feb highs of 5600, and the 50 DMA recently crossed below the 200 DMA (the “death cross”).
Positives: Price still above both 50 and 200 DMAs, and it has also shown a specific “higher low” – from the December 2011 lows of 4500 or whereabouts, the Nifty made a subsequent low of 4835 in May.
My personal trading system shows a negative short-term bias, and the entry point is only if the markets close down tomorrow (Monday).
