Fed-Induced Equity Bubbles Appear Ready to Pop
NEW YORK (TheStreet) -- The Fed-induced stock market bubbles continued to inflate as October ended and as November began. The Dow Industrial Average set a new all-time high at 15,797.68 yesterday, which followed a new all-time high for the Dow transportation average set at 7131.80 on Monday. The latest all-time high for the S&P 500 was set at 1775.22 on Oct. 30 with the Russell 2000 matching that feat on the same day with an all-time high at 1123.26. The Nasdaq set its latest multi-year high at 3966.71 also on Oct. 30.
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.
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.
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