Overvalued and Overbought Conditions Limit Upside

NEW YORK ( TheStreet) -- Stocks began 2013 with a strong rally and as a result have become overvalued fundamentally and overbought technically. We enter February with new monthly value levels, pivots and risky levels that should limit the upside potential for the stock market. With the yield on the 30-year bond trading around 3.20%, stocks have become less undervalued and more overvalued.

Some recent economic data have been weaker than expected such as: The Conference Board's reading on Consumer Confidence at 58.6 well below the 90 to 110 neutral readings, Advanced GDP for Q4, with a contraction of 0.1% when a modest expansion was expected, and Initial Jobless Claims back above the recessionary threshold of 350,000 with the four-week moving average still above 350,000 at 352,000.

It's all about valuations, technicals and levels, and it appears that the Dow Industrial Average and the S&P 500 will not see new all-time highs versus their October 2007 highs at 14,198.10 and 1576.09 respectively.

At www.ValuEngine.com we show that 63% of all stocks are overvalued up from 59.5% a week ago. When 65% or more are overvalued ValuEngine issues a valuation warning. This is the fundamental reason the Dow Industrials and S&P 500 will not set new all time highs during this rally.

Technically the monthly charts are overbought for Dow Industrials, S&P 500 and the Russell 2000, not for the Nasdaq or Dow Transports.

The weekly charts are overbought for the S&P 500, Dow Transports and Russell 2000 with Dow Industrials and the Nasdaq a week away from being overbought.

With all weekly charts becoming overbought next week the technicals suggest limited additional upside for the stock market at least for February.

Levels from my proprietary analytics suggest limited upside in February: New monthly risky levels are 14,132 on the Dow Industrials and 1542.9 on the S&P 500, both below their respective October 2007 highs.

Other new monthly risky levels are 3250 for the Nasdaq and 911.32 on the Russell 2000, which is just above the all-time high at 907.91 set on January 25. My quarterly pivots are 13,668 Dow Industrials, 1431.1 S&P 500 and 3071 Nasdaq. My annual pivot and monthly value level are 5469 and 5440 on Dow Transports. My annual pivot is 860.25 on the Russell 2000.

Key Levels for U.S. Capital Markets:

Yield on the 10-Year Treasury Note (2.000%): The weekly and monthly charts favor higher yields and this month's risky level is 1.843%. My annual pivot is 1.981% with my annual and semiannual value levels at 2.476% and 3.063%.

Comex Gold ($1,666.3): My annual value level lags at $1,599.9 with semiannual, monthly, quarterly and annual risky levels at $1,719.2, $1,793.8, $1,802.9 and $1,852.1.

Nymex Crude Oil ($97.18): My monthly and quarterly pivots are $96.21 and $95.84 with annual risky levels at $115.23 and $115.42.

Euro vs. Dollar (1.3643): Quarterly and annual value levels are 1.3334 and 1.3257 with a monthly pivot at 1.3570 and annual risky level at 1.4295.

The Dow industrial Average (13,861): Quarterly and annual value levels are 13,668, 12,696 and 12,509 with quarterly, monthly and semiannual risky levels at 14,118, 14,132 and 14,323. The October 2007 high is 14,198.10. The all-time closing high is 14,164.53 set on Oct. 9, 2007.

S&P 500 (1498.1): Quarterly and annual value levels are 1431.1 and 1348.3 with quarterly, monthly and semiannual risky levels at 1510.0, 1542.9 and 1566.9. The October 2007 high is 1576.09.

Nasdaq (3142): Quarterly and annual value levels are 3071, 2806 and 2790 with monthly, quarterly and semiannual risky levels at 3250, 3274 and 3583. The Sept. 21, 2012 high is 3196.93.

Nasdaq 100 (2732): Annual value levels are 2463 and 2385 with a quarterly risky level at 2798, and monthly and quarterly risky levels at 2871 and 2920.

Dow Transportation Average (5804): Annual, monthly and quarterly value levels are 5469, 5440 and 5094 with annual and semiannual risky levels at 5925 and 5955.

Russell 2000 (902.09): Annual, quarterly and annual value levels are 860.25, 821.01 and 809.54 with monthly, quarterly and semiannual risky levels at 911.32, 913.92 and 965.51.

PHLX Semiconductor Sector Index (412.73): Quarterly and annual value levels are 371.62 and 338.03 with a monthly pivot at 409.08, and quarterly and semiannual risky levels at 440.36 and 520.17.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.