The stock market has been trading under the cloud of a ValuEngine valuation warning since mid-May and today we show that 77% of all stocks overvalued, which is well above the 65% warning threshold. Technically, three attempts to confirm cycle highs were thwarted as all five major averages did not shift to having negative weekly chart. We enter November with four of the five with overbought 12x3x3 weekly slow stochastic with readings above 80.00.
As I have been saying; 'if you cannot confirm cycle highs, new highs will follow.' My market pulse shows the latest market highs and the upside potential to risky levels and the downside risk to value levels.
The weekly chart for Dow industrials is positive with its five-week modified moving average at 15,362.70. The weekly chart for the S&P 500 is positive but overbought with its five-week MMA at 1719.16. The weekly chart for the Nasdaq stays positive but overbought with its five-week MMA at 3824.00. The weekly chart for Dow transports is positive but overbought with its five-week MMA at 6742.39. The weekly chart for the Russell 2000 remains positive but overbought with its five-week MMA at 1083.84.
My new monthly pivot is 6927 on Dow transports with monthly risky levels at 16,162 Dow industrials, 1802.0 S&P 500, 4014 Nasdaq and 1133.14 Russell 2000.
Semiannual and quarterly risky levels are 16,490 and 16,775 Dow Industrials, 1853.8 S&P 500, 4025 Nasdaq, 7104 and 7205 Dow Transports and 1163.21 Russell 2000. Semiannual pivots are 1743.5 S&P 500, 3759 Nasdaq and 1089.42 Russell 2000.
My annual value levels remain at 12,696 Dow Industrials, 1348.3 S&P 500, 2806 Nasdaq, 5469 Dow Transports, and 809.54 Russell 2000.
Federal Reserve policy will not be jelling under Yellen! The federal funds rate has been at 0% to 0.25% since Dec. 16, 2008 and this has choked savers on Main Street, USA. Despite this ridiculously low interest rate, credit card rates are way too high and rates on small business loans have been on the rise. President Obama recently commented that the next Fed chairman needs to be more Main Street friendly. It seems to me that this commitment will not be jelling under Janet Yellen as Fed chief.
Quantitative easing programs have not worked either, unless you like bubbles that always pop. Bubbles in Comex gold and Nymex crude oil have popped. The housing bubble has popped, but is re-inflating. The stock market bubble has yet to pop despite the ValuEngine valuation warning.
Here's how to make Fed policy more Main Street friendly: Raise the federal funds rate to 3% and stop both QE3 and QE4.
Instead of QE3 and QE4 the Federal Reserve should implement a community bank credit facility to set a 30-year fixed rate mortgage at 4% and set a small business line of credit at 6%. Funds would be funneled to regional and community banks with assets between $10 billion and $100 billion. Mortgages should be plain vanilla pass-throughs with the small business loans similarly structured. Securitization of pools of these loans should be structured using the government backed Ginnie Mae program. Instead of the QE's these securities could be purchased by the Federal Reserve.
This strategy would support the U.S. economy from the bottom up rather than from the top down. Providing free money to Wall Street creates bubbles and that has to stop!
At the time of publication the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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