Major equity averages testing risky levels

The Fed-induced rally has resulted in an overvalued market fundamentally and an overbought market technically.

By TheStreet Staff Mar 8, 2013 4:17PM

thestreet logo Arrow Up copyright Image Source, PhotolibraryBy Richard Suttmeier


A risky asset class just got riskier as stock market fundamentals remain overvalued and as the technicals become more overbought. 

This week the Dow Jones Industrial Average ($INDU) joined the Dow Transportation Average setting new all-time highs, and in the process confirmed a Dow Theory Buy.


Friday morning, issued a valuation watch as 63.3% of all stocks are overvalued. A valuation warning comes when 65% or more of all stocks are overvalued. We have had market hiccups following two warnings already this year. We still show 15 of 16 sectors overvalued, 11 by double digit percentages. The three most overvalued sectors are transportation (by 20.9%), construction (by 22.0%), and consumer staples (by 22.5%).


The major equity averages are even more overbought technically with 12x3x3 weekly slow stochastic readings at: 93.16 for the Dow Industrials, up from 91.42 last week; 92.59 for the S&P 500 ($INX), up from 91.30 last week; 88.95 on Nasdaq ($COMPX), up from 87.39 last week; 93.94 on Dow Transports, down slightly from 94.50 last week; and, 92.49 on the Russell 2000, up from 91.60 last week. Readings above 80.00 are overbought.


The Dow Industrial Average ended Thursday just above its semiannual risky level, now a pivot at 14,323 with another all time closing high at 14,329.49. The next risky levels to focus on are my semiannual risky level at 1566.9 on the S&P 500, and the semiannual risky level at 965.51 on the Russell 2000. I project that there will be additional weekly risky levels next week to limit this MOJO run for stocks.


Here is my weekly review of the key levels for the U.S. capital markets:


Yield on the 10-Year Treasury note (2.01%): My annual and semiannual value levels are 2.476% and 3.063% with my annual pivot at 1.981% and new monthly risky level at 1.796%. Note how my annual pivot remains a magnet. Beware that the 30-Year bond yield is approaching its 2013 high at 3.25%, which is the yield that would likely cause more than 65% of all stocks to be overvalued for another valuation warning.


Comex Gold ($1577.5): The December 2011 low is $1523.9 with my annual pivot at $1599.9 and semiannual, monthly, quarterly and annual risky levels at $1719.2, $1737.6, $1802.9 and $1852.1. Gold has become oversold on its weekly chart.


Nymex Crude Oil ($91.71): The 200-week SMA is $86.65 with the five-week MMA at $93.01 on a negative weekly chart profile. My quarterly pivot is $95.84 with monthly and annual risky levels at $98.23 and $115.23.


The euro vs the dollar (1.3125): The weekly chart profile is negative with the five-week MMA and 200-week SMA at 1.3215 and 1.3526. My semiannual value level is 1.2797 with monthly and annual pivots at 1.3249 and 1.3257 and quarterly pivot at 1.3334.


Dow Jones Industrial Average ($INDU) (14,329.49): Quarterly and annual value levels are 13,668 and 12,696 with monthly and semiannual pivots at 13,949 and 14,323. Thursday's high was a new all time intraday high at 14,354.69 versus this week's risky level at 14,387.


S&P 500 ($INX) (1544.26): Quarterly and annual value levels are 1431.1 and 1348.3 with a monthly pivot at 1528.6, and weekly and semiannual risky levels at 1547.7 and 1566.9, versus the October 2007 intraday high at 1576.09.


Nasdaq ($COMPX) (3232.09): Quarterly and annual value levels are 3071 and 2806 with a monthly pivot at 3197, a weekly pivot at 3226, and quarterly risky level at 3274.


Dow Transportation Average (6081.42): Monthly and annual value levels are 5522 and 5469 with annual and semiannual pivots at 5925 and 5955, and this week's risky level at 6192 versus the intraday all time high at 6188.58 set on Wednesday.


Russell 2000 (934.57): My annual value levels are 860.25 and 809.54 with a monthly pivot at 901.68 and weekly and semiannual risky levels at 936.95 and 965.51. This small cap index set a new all time intraday high at 934.57 on Thursday right on the day's close.


As I said last week, weekly closes above all monthly pivots at 13,949 Dow Industrials, 1528.6 S&P 500, 3197 NASDAQ, and 901.68 Russell 2000 indicates potential strength to the risky levels at 14,323 Dow Industrials, 1566.9 S&P 500 and 965.51 Russell 2000. With the Dow just above 14,323, its one down, two to go.


We need weekly closes below these monthly pivots to indicate risk to the monthly value level at 5522 Dow Transports. The other first value levels are 13,668 Dow Industrials, 1431.1 S&P 500, 3071 NASDAQ and 860.25 Russell 2000.


At the time of publication the author had no position in any of the stocks mentioned.



More from

Mar 9, 2013 2:01PM
So let's see Dow's at 14,400 which is 3% above Oct 7, 2008 high but the FED has printed and the US Government has handed out $12 trillion in new fiat currency to inflate assets.  So we'll correct back to 12,960 in May and then, if GDP shows 2-3% gain in 2013,  go to 15,840 by end of 2013 or early 2014. Sure would like interest rates to go back to 5-6% in 2014-15 so I can get off this rollercoaster.
Mar 9, 2013 12:33PM

Active.....I have NO problem, pulling up the Charts on the RUT...Here..I pull info here everyday.


Did they just fix it....??  I Get all the info I need...Unless you are looking for something specific..?

But I do use many other sites, for Research; Usually get more then I want...

Much of the time, I don't even use the Trading platforms available from my house Fidelity..

I don't want this to become a job...Only a Hobby, to make my kids better off, someday.


Something I find interesting, if you don't receive it, is Seeking Alpha "Breakfast News."

You can sign up for it here under any(I think) S.Alpha article...Comes around  8-8:30, with overnight information and articles, along with Index mentions,Commods and Futures...It's free..

I comment or ask questions on some of their other Articles, from alerts.

Mar 11, 2013 10:37AM

Are we really testing risky levels or is the Recovery taking better hold...?

And it is reflecting in the Markets?

Mar 11, 2013 1:03AM
It appears The Street Staff is suggesting anytime the indexes reach new highs the stock market is overbought.  A Slow Stochastic rises and falls on volume not as a static percent.  The P/E levels of stocks are not out of line with earnings for the stocks that I have tested, usually a "round about" of 15 for established companies.  The Street Staff has not made a convincing argument that the stock market is oversold or overvalued. 
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.