New All-Time Highs in an Overvalued Market

TheStreet.com

NEW YORK (TheStreet) -- New all-time highs were set Thursday at 15,589.40 Dow industrials, 1693.12 S&P 500, 6595.90 Dow transports and 1052.46 Russell 2000. The Nasdaq set a new multi-year high at 3624.54.

On Tuesday the Dow industrial average traded below my monthly pivot at 15,437, but the close that day was above that milestone. This was a key to the climb to new highs as Fed Chief Bernanke provided dovish comments to the House on Wednesday then to the Senate on Thursday.

After the close on Thursday disappointing earnings from an old technology stock Microsoft and a new technology stock Google established the thought that negative earnings reports could trump the Fed's easy money policy.

In my opinion it will be difficult to continue these new all-time highs given the severity of the ValuEngine valuation warning. Today 76.1% of all stocks are overvalued with 43.6% overvalued by 20% or more. We show that 15 of 16 sectors are overvalued, 13 by double-digit percentages.

My monthly pivots are 15,437 Dow industrials, 1669.0 S&P 500, 3510 Nasdaq and 1030.75 on the Russell 2000 with my monthly risky level at 6758 Dow transports.

My quarterly value levels are 14,288 Dow industrials, 1525.6 S&P 500, 3284 Nasdaq, 5348 Dow transports and 863.05 on the Russell 2000. My semiannual risky levels are 16,490 Dow industrials, 1743.5 S&P 500, 3759 Nasdaq, 7104 Dow transports and 1089.42 Russell 2000. My annual value levels are 12,696 Dow industrials, 1348.3 S&P 500, 2806 Nasdaq and 809.54 Russell 2000.

There's a lot of room between these annual value levels and the semiannual risky levels. In Dow terms the upside is 941 points, or another 6.1%. The downside is 2,853 points, or 18.3%.

Here are my asset allocation ratings for the 16 sectors at ValuEngine:

Aerospace: Underweight -- (78 stocks) Only three stocks have buy ratings and 53 stocks or 67.9% are rated strong sell or sell.

Auto-Tires-Trucks: Underweight -- (95 stocks) Only two stocks have buy ratings and 31 stocks or 32.6% are rated strong sell or sell.

Basic Materials: Underweight -- (412 stocks) Only 15 have buy ratings and 232 stocks or 56.3% are rated strong sell or sell.

Business Services: Overweight -- (248 stocks) 50 stocks or 20.2% have buy ratings and only 15 are rated sell.

Computer & Technology: Overweight -- (1184 stocks) 483 stocks or 40.8% have buy ratings and only 34 are rated sell.

Construction: Underweight -- (162 stocks) Only eight stocks have buy ratings and 82 stocks or 50.6% are rated strong sell or sell.

In this sector I track the PHLX Housing Sector Index , (184.73) which was a market leader that's become a laggard. The housing index is up 7.8% so far this year and is down 12.0% from its May 20 high. A notable buy rated stock in this sector is home builder PulteGroup ($19.11). The stock closed Thursday just below its 200-day simple moving average at $19.22. My semiannual value level is $14.85 with a quarterly pivot at $19.37 and monthly risky level at $21.69.

Consumer Discretionary: Equal-weight -- (428 stocks) Only 11 stocks have buy ratings and only 24 stocks have sell ratings.

Consumer Staples: Overweight -- (269 stocks) 139 stocks or 51.7% have buy ratings and only four have sell ratings.

A notable buy rated stock in this sector is Dow component Coca Cola ($40.81). The company reported a disappointing earnings report premarket on July 16, but weakness stayed above the stock's 200-day simple moving average at $39.11. Yesterday's rebound was a return to the 50-day SMA at $41.08. My monthly and quarterly risky levels are $41.29 and $42.46.

Finance: Equal-weight -- (3134 stocks) 96 stocks have buy ratings and 65 are rated sell.

The PHLX KBW Banking Index set a new multi-year high at 65.90 on Thursday, up 28.4% year to date. All 24 components of the banking index are rated hold. 17 components have reported their quarterly results and only two missed EPS estimates.

Industrial Products: Underweight -- (361 stocks) Only 38 stocks have buy ratings and 152, or 42.2% are rated strong sell or sell.

Medical: Equal-weight -- (817 stocks) 88 stocks have buy ratings and 174 are rated sell.

Multi-Sector Conglomerates: Overweight -- (49 stocks) 36 stocks or 73.5% have buy ratings and none have sell ratings.

Two notable buy rated stocks are in this sector. Dow components 3M Company ($115.48) and United Technologies ($101.34). Both set new multi-year highs on Thursday and both report quarterly results next week. I will be profiling these next week before they report earnings.

Oils-Energy: Underweight -- (557 stocks) Only ten stocks have buy ratings and 183, or 32.9% are rated strong sell or sell.

Retail-Wholesale: Overweight -- (358 stocks) 288 stocks or 80.4% have buy ratings and only seven have sell ratings.

Transportation: Avoid source of funds -- (182 stocks) Only eight have buy ratings and 144, or 79.1% are rated strong sell or sell.

Utilities: Overweight -- (215 stocks) 57 have strong buy ratings and 135 have buy ratings, thus 192 or 89.3% are buy rated.

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.

EXCLUSIVE OFFER: See inside Jim Cramer’s multi-million dollar charitable trust portfolio to see the stocks he thinks could be potentially HUGE winners. Click here to see his holdings for FREE.

Rates

View Comments (0)