Historic FTSE 100 Trailing Price Earnings (PE) Ratio

As I wrote about a number of years ago, obtaining historic pe ratio data for the FTSE 100 is not as easy as it is for the US indices. Therefore I have again had to pull together this information myself. I couldn't believe that the PE ratio was in the high 30s and wanted to know whether this was related to Brexit or existed prior to that.

From the graph below you can see that in January 2016 the FTSE was still on a reasonable PE ratio of 16.69. However this changed rapidly from February 2016. I am guessing that this relates to the asset right offs from the big miners at the start of the year.



You could argue that this one off effects needs to be striped out of the data and hence this is why the FTSE is trading on such a high trailing PE. I don't have access to forward PEs, plus it is hard to know how reasonable the earnings estimates are.

One way around this is to use the cyclically adjusted pe (CAPE) ratio, and the CAPE is at much more reasonable level of 13.2. I am hoping that updated earnings will bring this ratio down to more reasonable levels. However Brexit and the Bank of England's bazooka response seems to have supercharged the issue. Time will tell whether the market will correct or the PE ratio gradually reduces.

Short Term Cycle Update - 23rd July 2016


I’ve been very busy so there was no time for a June update, but this is perhaps a good thing and it gives me more time to look back and reflect on performance.
The first thing to note is about the +4 days shift, this is what I wrote in May:

I have decided that the +4 days shift that I mentioned months ago needs to be added permanently. The low came on 6th May and the end date of green =4 days is 19th May. I will add the extra 4 days and follow that instead.”

With the benefit of hindsight the 4 days shift doesn’t look permanent and shouldn’t be added in. I waited months before deciding to add it in but now I shall return to the original cycle.  The results in May used the original cycle, as do these ones, so there is no change there.

If the May cycle was disappointing, the June one was terrible. Luckily the July cycle more than made up for it.
The cycle has beaten the Dow Jones by 68% and the FTSE 100 by 124% since 29 September 2016!
  
I managed to exceed the 542 points available in July by going long at 4am on 24 June 2016 as the shock Brexit referendum results were coming in (I trade CFD futures which trade 24 hours a day).
I am very pleased with how the short term cycle has performed since I started trading with it in September 2016, but it still makes me nervous as there are no certainties with trading.

Short Term Cycle Update - 16th May 2016

The short term cycle up phase just ended. It was a poor period compared to previous months.

I have decided that the +4 days shift that I mentioned months ago needs to be added permanently. The low came on 6th May and the end date of green =4 days is 19th May. I will add the extra 4 days and follow that instead.

Time cycles are not fixed and do move over time. This is most pronounced in short term cycles.

Fortunately for me I managed to get +62 points trading the FTSE with long positions during the green phase (after costs and dividends). I would have liked more but I feel this is a good result given the FTSE actually fell -49 points.

Sy Harding - Sell in May Signal Given


Sy Harding was the author of the Street Smart Report and also wrote two books on stock markets. Sy introduced his seasonal MACD strategy in his 1999 book, Riding the Bear. His seasonal MACD strategy combines the six month seasonal cycle from the Stock Traders Almanac and momentum using MACD. MACD is used to confirm or trigger bullish and bearish signals. According to the Stock Traders Almanac, using MACD greatly increased the profitability of the seasonal system and reduced risk.  

Discovered by Yale Hirsch, founder of the Stock Trader's Almanac, the six month cycle defines a bullish cycle running from November to April and a bearish cycle running from May to October. This is where the phrase “sell in May and go away” comes from, it is also referred to as the Halloween cycle.

Sy Harding’s buy and sell rules are as follows:

Buy Signal:

1. Buy on October 16th if MACD is bullish.

2. Wait for bullish MACD signal if MACD is not bullish on October 16th.  

Sell Signal:

1. Sell on April 20th if MACD is bearish

2. Wait for a bearish MACD signal if MACD is not bearish on April 20th.

 
I like these rules as they are simple. Sticking to them however is not!

Sy Harding died in April 2015 and so his report and seasonal timing signals are no longer published. The chart below shows that a sell signal was given on April 22nd 2016.
 
 

DJIA & FTSE 100 Short Term Cycle Update 17/4/2016

This was a very good green period. Both the DJIA and FTSE 100 were up over 150 points. I am still unsure about the 4 day shift and continue to monitor it, however I exited my longs last week.

I am up 1975 points since I started trading this system on 29 Sept 2015 (using FTSE 100 CFDs), just a little ahead of the 1518 that the short term cycle produced. I don't trade it exactly, but look to enter longs at the end of the red period/beginning of green period.