FREE (2) WEEK TRIAL TO GANN-ELLIOTT WEEKLY TRADING LETTER 
(NO OBLIGATION),      by MICHAEL E. RILEY, CTA, SINCE 1967

Will the (Dow's PE-Ratios) Affect Your Trading Portfolio?

April 24, 2003:  The (Dow)-Index is priced at (8500) and the S&P is at (910).

Because of  lower Corporate Earnings, the (Dow) has been down as much as (-38%)
and (S&P) has been down (-50%) from the highest price of (11,750) on the Dow
and (1552) on the (S&P) from the main top on March 24, 2000.

The (Dow Earnings) have been down (-20.6%) and the (S&P earnings) have been down (-50%) from the Highest Earning of ($485) in the (Dow) and ($50) in the (S&P) for the year 2000.

For the (Dow)-Index to be up to (10,000) in 2003, we must have improved (Dow) Earnings of
(5% to 10%) up to ($404 to $425) at least. The (Dow) would also have to
MAINTAIN a HIGH (PE) Ratio of (22 to 25) in year 2003.

 Earnings were reported at ( $385 ) for the full Year’ 2003.
(PE—RATIO) is at (22) with (DOW) Price at (8500) today on April 24, 2003.

Earnings expected up (4% to 6%) for (1^st--QT) to ($100) reported in April—May.
(PE—RATIO) will be (22.7) with (DOW) Price at (9000) and Earnings at ( $395 est ) (1^st—QT).
Earnings at ($385) for the past (12) months trailing.  (Calculation) (8500 / $385) = (22.1).

(DOW)-INDEX HISTORICAL (PE) RATIOS AND THEIR EFFECT ON YOUR STOCK PORTFOLIO ! !

Looking at Recent History: If you only look at the Earnings in years from 1990 through 2000, a (PE) of (19 to 20) is normal.
But, if we look at History before 1990 to 2000, we can see a much different Picture.

Looking at (PE) Ratios in the Long Term History of the (Dow) is as follows:

The Average (PE) was (20.0) for the (  5 yrs) from 1996 to 2000 while in a Bull Market.
The Average (PE) was (19.6) for the (10 yrs) from 1991 to 2000 while in a Bull Market.
The Average (PE) was (17.3) for the (15 yrs) from 1986 to 2000 while in a Bull Market.
The Average (PE) was (15.9) for the (20 yrs) from 1981 to 2000 while in a Bull Market.
The Average (PE) was (13.9) for the (30 yrs) from 1971 to 2000 while in a Bull Market.
The Average (PE) was (14.7) for the (40 yrs) from 1961 to 2000 while in a Bull Market.
The Average (PE) was (14.5) for the (50 yrs) from 1951 to 2000 while in a Bull Market.
The Average (PE) was (13.9) for the (60 yrs) from 1941 to 2000 while in a Bull Market.

The Average (PE) was (15.9) for the (20 yrs) from 1981 to 2000 while in a Bull Market. Earnings were improving in each of these years EXCEPT 1982, 1983 and 1990, 1991.
1980 and 1982 and 1990 were RECESSION years.
1983 and 1991 were the year after a recession and Earnings were Declining (-25% to -50%).  
Are you hearing about Declining Earnings today in the news?

The Highest (PE) in (80 years) since 1920, for the (DOW) was (31.4) in 1991.
The (2^nd) highest was (30.7) in September, 2001 when the (Dow’s) high was (11,350).
Both 1991 and 2001 were Declining Earnings years.
Both years were the Start of a Declining Stock Market.
The Highest (PE’s) were in a (10 yr) period from,1991 through 2000, in a Bull Market.
In 1995 the Average (PE) was (13.1).  In 1999 the Average (PE) was (23.2).

The Lowest (PE) in (80 years) since 1920,  for the (Dow) was (5.8) in 1974.
The (2^nd) lowest (PE) was (6.2) in 1980.
Both 1974 and 1980 were Improving Earnings years.
Both years were Major Bottoms when a New Long Term Bull started.
Both years were RECESSION years.
The worst Earnings years were the year after a RECESSION like (1975, 1981 and 1982).
The Lowest (PE’s) were in a (10) year period from, 1971 through 1980, in a Bear Market.
In 1978 the Average (PE) was (7.3).  In 1972 the Average (PE) was (14.1).

(DOW)-INDEX HISTORICAL (PE) RATIOS AND THEIR EFFECT ON YOUR STOCK PORTFOLIO ! !

The Average (PE) was (15.9) for the (20 yr) from 1981 to 2000 while in a Bull Market.

The Highest (Dow) Price ever was (11,750) in January 14^th, 2000, with a (PE) of (24.2).
The Highest (Dow) Earnings ever topped at ($485) for year 2000.

The Lowest (Dow) Price since year 2000, was (7,197) in Oct. 10^th, 2002 with a (PE) of (25.2).
Earnings are ($385) for the Year 2002, down (-20.6%) from the Highest Earnings in 2000.
The (Dow) Price of (7,197) has been down (-38.7%) maximum so far, from the high price in 2000.

The (Dow) is (8,500) today is down (22.6%) but the (PE) Ratio is HIGH at (22).
Earnings at ($385) for the past (12) month trailing.  (Calculation) (8,500 / 385) = (22).

If Earnings are flat in 2003 (at $385), then with an AVERAGE (PE) of (15 to 16),
then the (Dow) would have to be down to (5,800 to 6,200).  (Calculation) (385 X 16) = (6,160).

If the (Dow) earns ($400 to $408) for year 2003 and has an AVERAGE (PE) of (15 to 16). Then the (Dow) would have to be down to (6,000 to 6,500) in year 2003.

If the (Dow) earns ($400 to $408) for year 2003 and has a MEDIUM (PE) of (19 to 20).
Then the (Dow) would have to be AT (7,600 to 8,000) by year end of 2003.

Can the (Dow) earn (5% to 10%) more in 2003 than in 2002? If the (Dow) earns ($404 to $425) for year 2003 and has a HIGH (PE) of (22 to 25), then the (Dow) would have to be AT (9,000 to 10,000) by year end of 2003.

For the (Dow)-Index to get up to (10,000) in 2003, we must have improved (Dow) Earnings of
(5% to 10%) up to ($404 to $425) at least.
The (Dow) would also have to MAINTAIN a HIGH (PE) Ratio of (22 to 25) in year 2003.

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THE HISTORICAL HIGHS & LOWS, EARNINGS, (PE-RATIOS) and WAVE COUNTS

From 1895 to 2002 of the DOW INDUSTRIALS - INDEX

The (Dow)-Index is (30) Blue Chip Stocks and is not Representative of the Whole Stock Market.
This History of the (Dow)-Index Price to Earning Ratios (PE-Ratio) can help you understand
when the (Dow’s) Price is too High, when it is a Good Value, or when it is too Low (Cheap).
Price to Earnings Ratio (PE-Ratio) is calculated by dividing the (Dow’s) Price
by the (Dow’s) Earnings per Share.  ( Calculation ) (8500 / 410) = (20.7—PE)

1)  The Stock Market began in 1776.

2)  The (Dow) Industrials began in 1895 at a price of (40.95).

3)  The (Dow) topped at (381) on September 03, 1929,  (Wave (I)) up.
Earnings were ($19.90) with a (PE) of (19.15) and was up (+929%) since it began.

4)  The (Dow) Crashed and bottomed at (199) on October 29^th, 1929.
The (Dow) was down (-47%) from the 1929 top.

5)  The (Dow) bottomed at (41.20) in July, 1932,  (Wave (3A) of (II)) down.
Earnings were ($-0.50) with a (PE) of  ( - 0 ) and was down (-89%) from the 1929 top.

6)  The (Dow) topped at (194) in March, 1937,  (Wave (3B) of (II)) up.
Earnings were ($11.50) with a (PE) of (16.8) and was up (+470%) from the 1932 bottom.

7)  The (Dow) bottomed at (92.9) in April, 1942,  (Wave (5C) of (II)) down.
Earnings were ($9.20) with a (PE) of (10.0) and was down (-52%) from the 1937 top.

8)  The (Dow) topped at (995) in January, 1966,  (Wave (5) of (III)) up.
Earnings were ($57.70) with a (PE) of (17.2) and was up (+1071%) from the 1942 bottom.

9)  The (Dow) bottomed at (578) in December, 1974  (Wave (5C) of (IV)).down
Earnings were ($99.00) with a (PE) of (5.8) and was down (-42%) from the 1966 top.

10)  The (Dow) topped at (1,014) in March, 1976,  (Wave (1) of (V)) up.
Earnings were ($96.70) with a (PE) of (10.5) and was up (+75%) from the 1974 bottom.

11) The (Dow) bottomed at (777) in August, 1982,  (Wave (2) of (V)) down.
Earnings were ($62.00) with a (PE) of (12.5) and was down (-23.3%) from the 1976 top.

12) The (Dow) topped at (2,722) in August, 1987  (Wave (3) of (V)) up.
Earnings were ($161) with a (PE) of (16.9) and was up (+250%) from the 1982 bottom.

13) The (Dow) Crashed and bottomed at (1,621) on October 21st, 1987,  (Wave (4) of (V)) down.
Earnings were ($133) with a (PE) of (12.2) and was down (-40.4%) from the 1987 top.

14)  The (Dow) topped at (11,750) in January, 2000,  (Wave (5) of (V)) up.
Earnings were ($485) with a (PE) of (24.2) and was up (+625%) from the 1987 bottom.

15)  The (Dow) bottomed at (7,197) in October, 2002,  (Wave (3C)) down.
Earnings were ($385) with a (PE) of (19.5) and was down (-38.7%) from the 2000 top.