Quick take: Based on the December S&P 500 average of daily closes, the Crestmont P/E is now 80% above its arithmetic mean, up from 79% above mean the previous month and 73% the month before that. In his email to me, Ed Easterling pointed out that if we calculate the ratio based on the index's month end value, the Crestmont P/E would be 25.5, which is 85% above its mean.

The 2011 article P/E: Future On The Horizon by Advisor Perspectives contributor Ed Easterling provided an overview of Ed's method for determining where the market is headed. His analysis was quite compelling. Accordingly I include the Crestmont data to my monthly market valuation updates.

The first chart is the Crestmont equivalent of the Cyclical P/E10 ratio chart I've been sharing on a monthly basis for the past few years.

Click for a larger image

The Crestmont P/E of 24.9 is 80% above its average (arithmetic mean) of 13.8. This valuation level is identical to the 80% we see in the latest S&P Composite regression to trend update and higher than the 51% above mean for the Cyclical P/E10 (more here).

The Crestmont P/E of 24.9 puts the current valuation at the 97th percentile of this fourteen-decade series.

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For a better understanding of these charts, please see Ed's two-part commentary here:

• P/E: So Many Choices, Part I
• P/E: So Many Choices, Part II
   

And these articles explore key concepts for investment expectations and planning.

• Nightmare on Wall Street: This Secular Bear Has Only Just Begun
• Game Changer: Market Beware Slower Economic Growth
• What "Secular Cycle" Means