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Tuesday, April 9, 2013

Stocks more overvalued

I showed a version of this chart a while back.  It looks like stocks have become more overvalued.


It would appear that more stocks are over valued relative to their own history then at any time in the last dozen years.  Until I first saw this chart a while back I never understood the move down in the first half of 2002.  The 2001 recession was over, the economy was growing again and yet SPX dropped 20%.  I would suspect that earnings did not meet up with expectations caused by over valuation in many stocks.  Notice the peak in 2004.  It was not as high as the other peaks, but that year saw a protracted trading range that did not see the final low until Aug.  We are very similar to the 2007 time period with the high margin debt we have today.  Will it be different this time?  The risk of holding stocks through earnings this earnings season is probably the highest of any quarter yet in this bull market.  Be careful.


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