Marc Faber on Bloomberg March 24, 2009 discusses the current market rally, how long it might last and what numbers it might achieve. (Watch Interview)
I think that markets become extremely oversold on March 6 when the S&P touched 666. It was probably a false break out on the down side because we had reached 741 on the S&P on November 21st. And, on March 6, most stocks actually didn’t make new lows and all the sentiment had changed towards being extremely negative.
So the markets, in my opinion, wanted to go up anyway. We had a strong rally. We’re up 23% from the lows. I think this rally may have some more legs for the simple reason that if you print money it liquifies the system for a while and asset prices move up accordingly.
I think we can go maybe to around 880… I think investors have to get used to the fact that when a market is manipulated by governments, it becomes extremely volatile.
Marc Faber is suggesting that the S&P 500 may top out at 880. Based on S&P earnings of around $62.00, that would put the S&P 500 at a Price/Earnings of 14.1. For investors looking to short sell this market, waiting to a safety range of around 837 might be a good idea (13.5 P/E). Even if the market has more legs than Dr. Faber suggest, starting to move into an inverse position for a re-collapse of the markets might be a good play.
I like ProShares Short and UltraShort ETFs for this particular move. Take a look at ProShares Short S&P 500 ETF (SH) at around 13.5 P/E. If the S&P moves to 14.5 P/E, or around 899, it might be time to get even more aggressive with the UltraShort S&P 500 (SDS).
And if you think that Financials, which seem to have done quite well in the last couple of weeks, might be overbought, think about the UltraShort Financials ETF (SKS), which is down 65% since early March.