Dow 8000 the "new bubble"? S&P 500 P/E at 120 according to Chart of the Day

You wouldn't consider the Dow around 8000 to be a bubble, after falling so far - would you? Folks, we've been looking at bearish information about price/earnings (p/e) ratios that have been coming out in recent weeks. But this is eye-popping information, if it is correct (which I've got to assume it is)! I don't run these data myself so I'm relying on the folks at http://www.chartoftheday.com/ who generated it. It's definitely worth being aware of, so let's see what they say. According to today's "Chart of the Day" (issued May 21/22, 2009):

Chart of the Day
Last week's chart illustrated the current plunge of S&P 500 earnings. Today's chart illustrates how this plunge in earnings has impacted the current valuation of the stock market as measured by the price to earnings ratio (PE ratio). Generally speaking, when the PE ratio is high, stocks are considered to be expensive. When the PE ratio is low, stocks are considered to be inexpensive. From 1936 into the late 1980s, the PE ratio tended to peak in the low 20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s) and the dot-com bust (early 2000s). As a result of the current plunge in earnings and the recent 2.5 month stock market rally, the PE ratio has spiked to the low 120s – a record high.

Webmasters, journalists, and bloggers may post an occasional free Chart of the Day on their website as long as the chart is unedited and full credit is given with a live link to Chart of the Day at http://www.chartoftheday.com.

I've asked myself whether the data they present with this chart, may be subject to some of the inflation adjustments that have made their previous charts such as the inflation-adjusted earnings chart look so bearish. But I don't see how that could apply here, because the p/e ratio is supposed to compare prices to earnings. If Chart of the Day applies inflation adjustments to the earnings for this ratio calculation, they would have to apply the same adjustments to the prices. So, it should not matter whether or not the data used for the above calculations are inflation-adjusted.

Meaning, their chart might be one of the most bearish signs for the markets yet. And, whether or not the markets might continue with bear-market rallying, this helps to support the case that a supercycle-level wave is what the bear market needs to work off for some more months or years, before it's all done.

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Note, I posted this yesterday but didn't have time to address it properly and include the standard Chart of the Day link and terms. That's corrected here, and I've also "moved" this post to today since my discussion is new, and I'd like it on the "front page" for my readers to be able to see more easily today.