Don't Believe Stocks Are Still Cheap
This morning we show that 66.3% of all stocks are overvalued, where readings above 65% define a ValuEngine valuation warning, which typically occurs prior to a market top. Today we show that 26.6% of all stocks are overvalued by more than 20%. We also show that 15 of 16 sectors are overvalued, with 11 sectors overvalued by double-digit percentages. This makes investing more like trading technical momentum.
As stocks move to new highs they become overvalued fundamentally and overbought technically, and can trade above their risky levels. Many stocks and indices form parabolic upside patterns that become bubbles, and all bubbles eventually pop.
Even with a valuation warning, when you cannot confirm a market high based upon the technicals, you get higher highs as the bubbles continue to inflate.
On April 19 I wrote, Warning Flags Fly, But Stock Top Unconfirmed as the weekly chart profiles did not shift to negative. A week later on April 26 I wrote, Dow, S&P, Nasdaq Poised To Recapture March/April Highs and this week we have seen a continuation of higher highs.
On Thursday the major averages set new intra-day highs at; 15,144.83 Dow industrials, 1635.01 S&P 500, 3428.54 Nasdaq, 6417.38 Dow transports and 970.46 Russell 2000. Dow transports ended Thursday below Wednesday's low at 6341 setting up a potential key reversal given lower closes today and Monday.
Over the past several weeks I indicated that weekly closes above my semiannual pivot at 1566.9 on the S&P 500 would indicate upside potential to my semiannual pivot at 965.51 on the Russell 2000, which has been accomplished. A close today above 965.51 Russell 2000 indicates a potential continuation of the bubbles to my semiannual risky level at 3583 on the Nasdaq. If this occurs, the valuation warning will intensify particularly with the yield on the 30-Year Treasury above 3.00%.