Is the market getting pricey?

Stocks have been soaring since their bottom in March 2009. The gaps between index values and their 200-day moving averages are widening, perhaps to insupportable levels.

By Charley Blaine Dec 21, 2010 8:51PM
Stock Traders © Digital Vision Ltd. / SuperStockToday's rally suggests we're dealing with a great market.

In fact, lots of people predict sizable gains for stocks in 2011. Goldman Sachs economist Jim O'Neill even predicted that an improving economy and falling jobless rates could fuel a 20% rise in the Standard & Poor's 500 Index ($INX) next year.
But, with the Dow Jones industrials ($INDU) up 10.7% for the year and 4.8% for December, it's fair to ask if the market is frothy.

Here's one way to look at the question: The Dow has climbed 76% since its March 2009 bottom. The S&P 500 is up 85%. The Nasdaq Composite Index ($COMPX) has risen 110%.

The Nasdaq-100 Index ($NDX.X) has jumped 114% and finished the day 4.4 points below its record close of 2,238.98, set on Oct. 31, 2007.

Here's another way: The Dow is 7.7% above its 200-day moving average, with the S&P 500 9.8% above its 200-day average.

The Nasdaq is 12.9% above its 200-day moving average. The Nasdaq-100 is 13.8% above its 200-day average.

The last time the gap between index level and 200-day moving average was so great for each of the indexes was late April. Then, the market tipped over, falling 15% by July.

And that could mean . . .  At least in the short run, the market is becoming vulnerable to a pullback -- especially if the bullish economic data we've seen of late aren't sustained.

That's what happened in the spring. But if the economic recovery does strengthen as many expect, stocks could move higher.

Could something worse happen? Of course. In the spring of 2007, the gap between the Dow and its 200-day average was nearly 11%, and 9% for the S&P 500. When the Nasdaq peaked on Oct. 31, 2007, its gap was 11.4%.

So, is there a catalyst that could blow the market up again? Everyone has been looking for the ticking time bomb and has focused on the European debt crisis, foreclosures or the crunch facing state and municipal finances.

But there are some big differences between now and 2008. A deep housing slump was emerging that would nearly ruin the financial industry. The automobile industry was slumping badly as crude oil was beginning its big run-up to $147 a barrel.
Dec 22, 2010 12:41AM

$90/brl and climbing; something is going to give and the only thing thriving right now is the market!

Dec 22, 2010 2:03PM


He's my dog walker and he can'\t even do that right.  Not enough common sense.  But this article is loaded-with BS and Charly put his name to it.

Dec 22, 2010 1:25PM

Money Wise;  whose charlie blaine??? is he a street cleaner, gutter trype washer???





Dec 22, 2010 10:46AM

The only overpriced item I see is Charlie Blaine's salary.  No matter what it is, it's too high for such a talentless hack.  I know this is the season of good cheer and kindness but this guy is just so off base, it's pathetic.


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