The S&P 500 is now a thousand points above its March 2009 low at 666.79, when stocks were significantly undervalued fundamentally and extremely oversold technically, but no one wanted to buy.
I was on financial television within days of that low and the network did a poll on whether or not they agreed with my call that the S&P 500 would rally 40% to 50% from that devilish 666 level.
Only 8% of viewers agreed with my call, so I pounded the table harder. The chart below shows the ValuEngine sector valuations on March 9, 2009.
Today stocks are more overvalued fundamentally and more overbought technically than a week ago, as new highs continue for the major equity averages with the Nasdaq ending last week just 2.4% below its semiannual risky level at 3,583. Attributing to this dilemma the yield on the 30-Year U.S. Treasury bond rose to 3.17% from 3.10% a week ago. The ValuEngine Valuation Warning intensified to 71.7% of all stocks overvalued versus 68.7% a week ago, and with 33.9% of all stocks overvalued by 20% or more versus 29.7% a week ago.
Today 15 of 16 sectors are overvalued, 14 by double-digit percentages with the retail-wholesale sector 21.5% overvalued and the transportation sector overvalued by 20.0%.
The problem I have is that there are no fundamental or technical signals that the equity bubbles will pop anytime soon. When parabolic bubbles are inflating you just don’t know how high that market can go.
Over the weekend I saw a headline in an e-mail proclaiming Dow 60,000. To me this is less likely than the 1,000% rise in the price of a tulip bulb from the year 1636 into February 1637 when the price abruptly collapsed. Some estimate that the price of a tulip bulb peaked above $60,000 in terms of current dollars.
As I mentioned above, the retail-wholesale sector is the most overvalued, but 61.1% of all stocks in this sector are rated buy according to ValuEngine. There will be an important test this week as at least 18 buy rated retail-wholesale companies report their quarterly results.
Wal-Mart Stores WMT -0.26% reported its quarterly earnings last Thursday and missed EPS estimates by a penny earning $1.14. The company also gave cautious forward guidance and the stock fell from a multi-year high at $79.96 to $77.87 at Friday’s close. Wal-Mart remains buy rated, but has become 14.5% overvalued. My monthly value level is $74.08 with a quarterly pivot at $78.49 and weekly risky level at $81.50.
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The transportation sector is at the other end of the spectrum with 81.5% of all stocks in the sector rated sell or strong sell despite another new all time high for the Dow Transportation Average. The iShares Dow Jones Transportation Average (IYT) closed at an all time closing high at $116.92, which is above weekly and monthly pivots at $112.50 and $111.46. After setting a March 19 high at $112.30 this exchange-traded fund declined to $104.40 on April 5, then stabilized around my annual and semiannual pivots at $106.22 and $106.95 setting the stage for a return of market momentum.
Summarizing: The Dow remains above my monthly and semiannual value levels at 14,651 and 14,323 setting a new all time high at 15,357.40 on May 17. The S&P 500 remains above monthly and semiannual pivots at 1,587.3 and 1,566.9 setting a new all time high at 1667.47 also on May 17, a thousand points of light above its March 2009 low. Transports are above its monthly pivot at 6,284 setting its all time high at 6,549.73 on May 17. The Russell 2000 set a new all time high at 996.47 on May 17. The next semiannual risky level is 3,583 on the Nasdaq
If these bubbles pop in 2013, the downside risk is to my annual value levels at 12,696 Dow Industrials, 1,348.3 S&P 500, 2,806 Nasdaq, 5,469 Dow Transports and 809.54 Russell 2000.
Keep in mind that bubbles always pop!