NEW YORK (TheStreet>) -- The stock market has become intensely overvalued fundamentally and the weekly charts for the major averages have become extremely overbought.
A ValuEngine valuation warning occurs when more than 65% of all stocks become overvalued, and this began in mid-May. Today we show that 83.9% of all stocks are overvalued 52.8% by 20% or more. In addition all 16 sectors are overvalued 15 by double-digit percentages. We show that 10 sectors are overvalued by 30.6% to 37%. Sector price-to-earnings ratios are elevated between 18.15 and 31.1. The stock market is thus not cheap by any fundamental metric.
Last week ended with new all-time or multi-year intra-day highs for the major equity averages at 16,174.51 on the Dow Industrial Average (^DJI), 1813.55 on the S&P 500 (SPY), 4069.70 on the Nasdaq (^IXIC), 7273.81 on the Dow Transportation (^DJT) average and 1147.00 on the Russell 2000 (^RUT). Transports began this week extending its all-time intra-day high to 7304.49. The overbought readings for their 12x3x3 weekly slow stochastic are well above the 80.00 threshold between 91.05 and 95.74, but confirming market highs is not immanent.
As I have been saying; 'if you cannot confirm cycle highs, new highs will follow.' My market pulse shows the latest market highs and the upside potential to risky levels and the downside risk to value levels. In my judgment the upside in terms of the Dow Industrials is limited to 3.6% and 5.4% while the downside risk is 20.2%.
The daily charts for the major equity averages are showing some negative divergences. The Dow Industrial Average shifts to negative with a close below its 21-day simple moving average at 15,889. The S&P 500 shifts to negative on a close below its 21-day SMA at 1785.7. The Nasdaq remains positive but overbought with the 21-day SMA at 3966. The Dow transportation Average shifts to negative with a daily close below its 21-day SMA at 7143. The Russell 2000 remains positive but overbought with its 21-day at 1112.44.
The weekly charts are not yet showing any negative divergences. The Dow Industrial Average remains positive but overbought with its five-week modified moving average at 15,768. The S&P 500 remains positive but overbought with its five-week MMA at 1770.5. The Nasdaq remains positive but overbought with its five-week MMA at 3947. Dow transports remains positive but overbought with its five-week MMA at 7042. The Russell 2000 remains positive but overbought with its five-week MMA at 1110.32.