5 reasons this bull market looks wobbly

By Xavier Brenner

US Federal Reserve Chair Janet Yellen has just entered the fray about whether stocks are overvalued.

In congressional testimony, Yellen said that market valuations were "quite high" and that there were "potential dangers there."

Here are 5 reasons to take that warning seriously.

 

 

Range-Bound

This bull market, now in its sixth year, is starting to show its age.

One sign of potential trouble is that stocks have been in a range-bound trading pattern for the last year or so.

In recent weeks, share prices have been testing the lower part of the range. That could be a sign of trouble.

 

 

Market Breadth

Another worrisome sign is the shrinking breadth of stocks participating in the rally.

According to Bespoke Investment, just 35.4% of the stocks in the S&P 500 (as of May 6) are trading above their 50-day moving averages.

 

 

 

Bullishness

Nor is investment sentiment all that grand, despite the fact that the S&P 500 and Nasdaq are trading near all-time highs.

Bullish sentiment has been declining for the past 8 weeks, according to data compiled by the American Association of Individual Investors (AAII).

 

 

Valuations

Consider this: The 10-year average price-to-earnings ratio for the S&P 500 Index is 15.8, as the Wall Street Journal reported

As of May 6, the index traded at 17.5 times the last 12 months of earnings, according to FactSet.

That's up from 16.5 a year ago.