Percentage of Oversold Stocks At Highest Level Since March 2009

(…) Currently, 305 stocks (61%) in the S&P 500 are oversold, while only 25 are overbought (stocks that are more than one standard deviation above or below their 50-day moving average).  As shown in the chart below, the percentage of oversold stocks in the S&P 500 (green line) is higher than it has been at any other time since the S&P 500 bounced off the lows in March 2009.

This Bespoke Investment post could prove timely. The S&P 500 Index is off 7% from its recent high even though Q4 earnings have been pretty good.

Nearly three quarters of firms have beat analyst expectations and on average companies are beating expectations by 13%.

Q4 S&P 500 EPS are now forecast to come in at $17.33 (operating) for a 2009 total of $57.03. The market is thus selling at 18.5x trailing eps which, according to the Rule of 20 is only 3% above fair value using 2% inflation (see also on valuation US EQUITIES VALUATION ANALYSIS: DUCK, YOU (HAPPY) SUCKERS!.

Q1 2010 eps are now forecast at $17.16 which would add $7 to trailing eps given Q1 2009 eps of only $10.11. This would bring trailing eps to $64. To me, this is the more appropriate basis to calculate PEs. The PE on trailing 12 month eps is thus 16.5x. Unless inflation (real or expected) rises to more than 4%, equities are not expensive at current levels.

That said, technicals are not inspiring.


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