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August Begins With New Highs and New Risky Levels


NEW YORK ( TheStreet) -- July ended with a new all-time high for the Dow Industrial Average at 15,634.32 and with a new multi-year high on the Nasdaq at 3649.35. QE-induced bubbles continue to inflate the stock market and many individual stocks. The ValuEngine valuation warning continues with 76% of all stocks overvalued and with 43.5% overvalued by 20% or more. On the technical side, the weekly charts for the major averages are becoming overbought once again led by the Nasdaq and Russell 2000.

Fed Chairman Bernanke's policy experiment with a 0% federal funds rate and continuing quantitative easing has created a zombie economy. Savers have no discretionary dollars to spend, consumers are taxed with high gasoline prices, the housing bubble is re-inflating, and banks are raising rates on credit cards, small business loans and mortgages. I discussed this in detail on July 31 in Fed Policy Hurts Main Street, Creates Bubble Stocks. I say raise the funds rate to 3% and stop the QE madness!

We begin August with quarterly value levels at 14,288 Dow industrials, 1525.6 S&P 500, 3284 Nasdaq, 5348 Dow transports and 863.05 on the Russell 2000 with monthly and semiannual risky levels at 16,188 and 16,490 Dow industrials, 1742.5 and 1743.5 S&P 500, 3663 and 3759 Nasdaq, 7087 and 7104 Dow transports and 1092.24 and 1089.42 Russell 2000. My annual value levels lag at 12,696 Dow industrials, 1348.3 S&P 500, 2806 Nasdaq and 809.54 Russell 2000.

Here's a risk / reward for the major equity averages for the next five months:

When you look at this table, I show the upside percentage to semiannual risky levels and the downside risk to the semiannual value levels.

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

Aerospace: Downgraded to avoid-source of funds from underweight (78 stocks). Only five stocks have buy ratings and 57 stocks or 73.1% are rated strong sell or sell.

Auto-Tires-Trucks: Underweight (95 stocks). Only two stocks have buy ratings and 32 stocks or 33.6% are rated strong sell or sell.

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