Capitulation?

As the US markets get ready to gap lower this morning, we want to reiterate our Catch a Falling Knife blog from Friday. On Friday, the markets broke several short term resistance levels all in one day. Support levels become meaningful if broken. As we said on Friday, a breach below the October 2014 low in the mid 1800’s would be frustrating. The historical S&P average is 14 times earnings. We are not far off from the average. We can never quantify market hype, but this is starting to feel like “capitulation” because of the sharp selloff in such a short period time.

European markets are now below the levels that were reached before the quantitative earnings announcement last fall. The emerging markets are at the cheapest levels in years. The US markets, including this morning’s rout will put valuations back to a reasonable level. Nobody can catch a falling knife perfectly, but if a person has a risk appetite, the markets are at a much better entry point today than they were 6 months ago.

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