Friday, April 4, 2014

The Stock Market Peaking at Same Valuations as 2007?

I wrote a blog a few days ago titled The Stock Market Is Probably Peaking.  I lay out a few arguments that the stock market is probably in the process of peaking.  Tops and bottoms are processes -- not a single day event.  Today the momentum names, the NASDAQ and small caps are all down 2 to 10%:  a big selloff on a Friday.  It feels bad this Friday afternoon, but things could look a lot different on Monday.   I added about 5% of equities to my portfolio:  I added Solar City (SCTY), Micron (MU) and a Solar ETF (TAN). 

At the start of the day today,  I only held about 12% equities comprised of 5 to 6% yielding MLP funds, infrastructure ETF fund (UTF), and some utility and telephone stocks.  The balance of the accounts are 35% in cash, 8% commodities (long and short) and alternative investments, and 45% in a mix of very short-term bank loan funds, other very short-term high yield instruments and a significant amount of longer term closed-end bond funds yielding up about 7 to 8%.

With a hat tip to Zero Hedge, the following chart shows that the stock market today is exactly at the same high valuation as the peak in October 2007.  The Market peaked in March 2000 at even higher valuations.  Valuations don't mark a market top but high valuations with technical deterioration do.  The number of stocks participating in recent highs has been declining for several months now.  Now momentum stocks and biotech shares are cratering -- many in bear markets in just a few weeks time.  A deluge of questionable IPOs is another bad sign.

Here's the chart:

Be careful out there! 

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