All three stock market indexes are bearish

The stock market today is a bubble; the valuations are extremely high at roughly 25 times earnings before the recent drop. This drop could be the trigger that the bubble is about to burst. The danger zone is when extremely high valuations coincide with a market drop. It’s just the opposite scenario when stocks are bullish: when very low valuations concide with a market rally. The stock market is a bubble, not only because of its extreme valuation but also because the fundamentals are not commensurate with the high prices. The table below contains the earnings and revenue for the Machine sector that grew by an extremely high 8.2% since Oct 1.

Symbol  Last EPS Est % Chg for Cur Year  3 Year Sales Growth Rate
RSG 7% 4%
ITW 10% -3%
ABB 9% -8%
MTW n/a (cur qtr -127%!) -20%
PNR 6% -15%
WM 12% -3%
TEX -51% -12%
CAT -38 -11%

The average EPS change for the current year was -5.6% and the average three-year sales growth was -4.1%. Needless to say, these are truly pathetic for the sector that was the strongest!
The Dow lost the least since October 1: -2.1%; the S&P lost -4.6% and the Nasdaq Composite lost the most: -4.8%. All three indexes have moved below their early September lows.

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