August 14, 2012     In my article Get Ready for the Next Great Bull Market I showed that when the spread between the 50- and 200-month moving average of the S&P forms a trough, it identifies beginnings of major bull markets. Accordingly a new bull market should start at the end of this year. My further analysis, using an adjusted normalized price to earnings ratio, indicates that a major bull market has already started in 2009.

Most of us are familiar with the Shiller cyclically adjusted price to earnings ratio of the S&P. It is the real price of the S&P divided by the average of the real earnings over the preceding 10 years and is identified as P/E10 in Shiller’s S&P data series. The 10 year period seems to have been arbitrarily chosen so as to minimize the effects of business cycles. I am using P/E5 for my analysis, which is the real price of the S&P divided by the average of the real earnings over the preceding 5 years.