This first table shows that the ValuEngine valuation warning reached its severest 2013 levels on Nov. 6 when 83.3% of all stocks were overvalued, with 53.3% overvalued by 20% or more. This was partially caused by the rise in the yield of the 30-year Treasury bond to 3.75%.
The second table shows an overview of Sector Valuations as they were on Nov. 6. Note that 15 of 16 sectors were overvalued by double-digit percentages. We showed that 12 sectors were overvalued by 21.6% to 28.1%. The year to date gains are indeed impressive as are the gains over the last 12 months, but note that the P/E ratios are extremely elevated between 17.12 and 30.66.
After monthly benchmark revisions to ValuEngine data two interesting changes have occurred this morning. All 16 sectors are now overvalued as the basic materials sector shifted to 6.65% overvalued from 3.67% undervalued. The most overvalued sector is now multi-sector conglomerates at 31.07% overvalued vs. 25.47% on Nov. 6.
When the fundamentals are stretched we look at the technicals to determine when cycle highs can be confirmed. So far this year there have been three attempts to confirm cycle highs, but at least one of the five major averages did not shift to a negative weekly chart profile, thus a confirmation was thwarted and new highs followed.
Negative Divergences from the Daily Charts:
The daily chart for the Dow Industrial Average shifted to neutral from positive with the 50-day simple moving average at 15,298.31 and the new all-time intra-day high at 15,797.68 set on Thursday. The Dow ended the day below Wednesday's low at 15,628.72, which defines a key reversal day. Keep in mind that the Dow is up just 0.3% since its May high.
The daily chart for the S&P 500 shifted to neutral from positive with declining momentum with its 50-day SMA at 1707.71 and the Oct. 30 all-time high at 1775.22.
The Nasdaq has a negative daily chart with Thursday's close below its 21-day SMA at 3892.30 with its 50-day SMA at 3796.64 and its Oct. 30 multi-year high at 3966.71.
The Dow transportation average shifted to neutral with its 50-day SMA at 6703.86 and its Nov. 4 all time high at 7131.80.
The Russell 2000 has a negative daily chart with the 21-day SMA at 1102.33, its 50-day SMA at 1077.18 and the Oct. 30 all time high at 1123.26.
Negative Divergences from the Weekly Charts:
The weekly chart for the Russell 2000 shifts to neutral from positive with a close today below the five-week MMA at 1082.29. More importantly a close today below last week's close at 1095.67 continues a potential weekly key reversal.
Here's Today's Market Pulse:
My monthly risky levels are 16,162 Dow Industrials, 1802.0 S&P 500, 4014 Nasdaq and 1133.14 Russell 2000. A close today below my monthly pivot at 6927 on Dow Transports would be another negative divergence.
Based upon my semiannual pivots an overall neutral zone is between 3759 on the Nasdaq and 1089.42 on the Russell 2000 with 1743.5 on the S&P 500 in-between. A close today below 1743.5 on the S&P 500 would thus be another negative divergence.
My semiannual and quarterly risky levels are 16,490 / 16,775 Dow Industrials, 1853.8 S&P 500, 4025 Nasdaq, 7205 Dow transports and 1163.21 Russell 2000.
If the stock bubble breaks the risk is to annual value levels at 12,696 Dow Industrials, 1348.3 S&P 500, 2806 Nasdaq, 5469 Dow transports, and 809.54 Russell 2000.
Confirming Cycle Highs:
To confirm cycle highs all five major equity averages need to have negative weekly chart profiles. This is defined by simultaneous weekly closes below five-week modified moving averages with 12x3x3 weekly slow stochastic readings declining below 80.00 on a scale of 00.00 to 100.00, where readings above 80.00 is overbought. The five-week MMAs are 15,415.30 Dow Industrials, 1725.15 S&P 500, 3829.93 Nasdaq, 6793.81 Dow transports, and 1082.29 on the Russell 2000. The weekly 12x3x3 weekly slow stochastic readings are rising on Dow Industrials, and are overbought on the S&P 500, the Nasdaq, Dow transports and Russell 2000.
When this confirmation finally occurs the Fed-induced equity bubbles will pop. Today we are in the snap and crackle phase with the divergences I cited today.
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.