This Makes Me A Little Nervious

• The stock market is basically impossible to forecast in the short term 
•  I am a big advocate of not market timing by going "all in" any single asset class.
• There is a well known document momentum factor in short term market movements.
• But in the short term price can deviate from value and there is a reliable pattern of prices reverting to the mean (closer to value)

On the Other Hand... Remember that stock prices can move higher only one of two ways: p/e (or other multiple )expansion ( a higher valued stock market ) or  higher earnings (which keeps the p/e growth minimal, nil or even can push it lower) Right now we are in a p/e expansion mode on historical short and long term earnings measures meaning that the expansion is based on increasing enthusiasm for future earnings (if price is keeping base with value). Or the move up is based on too rosy a forecast for the future=pure momentum and price is deviating from value.

One of the fewer macro indicators with some medium to long term efficacy is the  Schiller p/e ratio based on Long Term Normalized Earnings.(more explanation here). And that indicator is at a minimum flashing a warning signal.

Current Shiller PE Ratio: 23.75 +0.03 (0.11%)

4:35 pm EST, Wed Mar 6

Mean:	16.46
Median:	15.87
Min:	4.78	(Dec 1920)
Max:	44.20	(Dec 1999)

And Here is the P/E most analysts and journalists commonly refer to:price to earnings ratio, based on trailing twelve month “as reported” earnings.

Current PE is estimated from latest reported earnings and current market price.

Current S&P 500 PE Ratio: 17.53 +0.02 (0.11%)

4:35 pm EST, Wed Mar 6

Mean:	15.49
Median:	14.49
Min:	5.31	(Dec 1917)
Max:	123.79	(May 2009)

Price to earnings ratio, based on trailing twelve month “as reported” earnings.

Current PE is estimated from latest reported earnings and current market price.I would regard a third measure of p/e based on forecasted earnings as of little use, considering the unreliability of earnings forecasts 

Looking at this S+P 500 chart above (total return) and especially the pattern of last  3 years with major rallies in the first quarter followed by sharp declines through the middle of the year and strong annual performance one might conclude it is worh looking into some rebalancing to return portfolios to target allocations by selling some stocks.

One the other hand many might look at the 45% total return and conclude that despite the roller coaster ride it was worth simply ignoring the selloff and not making any adjustments.

I tend to favor rebalancing.