Overvalued and Overbought Conditions Limit Upside
Some recent economic data have been weaker than expected such as: The Conference Board's reading on Consumer Confidence at 58.6 well below the 90 to 110 neutral readings, Advanced GDP for Q4, with a contraction of 0.1% when a modest expansion was expected, and Initial Jobless Claims back above the recessionary threshold of 350,000 with the four-week moving average still above 350,000 at 352,000.
It's all about valuations, technicals and levels, and it appears that the Dow Industrial Average and the S&P 500 will not see new all-time highs versus their October 2007 highs at 14,198.10 and 1576.09 respectively.
At www.ValuEngine.com we show that 63% of all stocks are overvalued up from 59.5% a week ago. When 65% or more are overvalued ValuEngine issues a valuation warning. This is the fundamental reason the Dow Industrials and S&P 500 will not set new all time highs during this rally.
Technically the monthly charts are overbought for Dow Industrials, S&P 500 and the Russell 2000, not for the Nasdaq or Dow Transports .
The weekly charts are overbought for the S&P 500, Dow Transports and Russell 2000 with Dow Industrials and the Nasdaq a week away from being overbought.
With all weekly charts becoming overbought next week the technicals suggest limited additional upside for the stock market at least for February.
Levels from my proprietary analytics suggest limited upside in February: New monthly risky levels are 14,132 on the Dow Industrials and 1542.9 on the S&P 500, both below their respective October 2007 highs.
Other new monthly risky levels are 3250 for the Nasdaq and 911.32 on the Russell 2000, which is just above the all-time high at 907.91 set on January 25. My quarterly pivots are 13,668 Dow Industrials, 1431.1 S&P 500 and 3071 Nasdaq. My annual pivot and monthly value level are 5469 and 5440 on Dow Transports. My annual pivot is 860.25 on the Russell 2000.
Key Levels for U.S. Capital Markets:
Yield on the 10-Year Treasury Note (2.000%): The weekly and monthly charts favor higher yields and this month's risky level is 1.843%. My annual pivot is 1.981% with my annual and semiannual value levels at 2.476% and 3.063%.
Comex Gold ($1,666.3): My annual value level lags at $1,599.9 with semiannual, monthly, quarterly and annual risky levels at $1,719.2, $1,793.8, $1,802.9 and $1,852.1.