Breakout

Dow Will Hit New Highs Before Crashing 50%: Kee

Breakout

There's an old axiom that claims you get what you pay for, meaning value does not come cheaply. This is particularly poignant at a time when traders are on watch for the Dow (^DJI) and S&P 500 (^GSPC) to set new closing highs and investors seem immune to existing signs of caution. Even the worst GDP figure in 3 1/2 years didn't do much to slow the market's ascent.

Even the most optimistic investors are getting a bit antsy these days, wondering how and when it's all going to end. For Tom Kee, president & CEO of Stock Traders Daily, the answer to that question is 'not well.'

"I'm looking for another high in this market, then I am looking for a turn down," Kee says in the attached video, adding that he believes it is "going to come relatively soon."

By downturn, however, what Kee real means is a crash to the tune of ''50 to 60%," which would bring the Dow Jones under 6,000.

A plunge of that size, over a span of weeks and months, is not unheard of. In fact, Kee says, the last time the Dow peaked in 2007 we saw it crash by that amount, just as it did following its previous high in 2000.

Kee says he came to this dire conclusion using a number of technical and fundamental analytical tools, including an earnings per share growth rate for the Dow that he calculates at 1.18%. It's a sluggish pace that he says "just isn't enough to justify the growth in the Dow's actual price."

Similar treachery lies ahead for the S&P 500, he predicts. Although its normalized growth rate, excluding such outliers as Goldman Sachs (GS), is roughly 4%, he argues that is still does not warrant a multiple of 15 to 16 time earnings.

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