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Market Valuation

|Includes:QQQ, SPDR S&P 500 Trust ETF (SPY)

Thus, January ended in the red. This bodes poorly for the market. There is a phenomenon called the January barometer, in which the full-year course of the market has been predicted by January's movement in 87 of the past 116 years. It is much more predictive with January rises than during January declines. The year has ended below January's low only 48% of the time. Thus, I am going to reduce the year's prediction in half, to 3%.

Shiller P/E is the ratio of the current price divided by the 10-year average of earnings adjusted for inflation. The US market, measured by the Shiller P/E is now at 25. Historically, 16.5 has been the average. The 30-year low was in 1982 when the Shiller P/E was 7 and the high was in 2000 when it stood at 44. We are just short of the 2007 peak of 27. So, we are about 50% overvalued. Mind you, I don't put much value in valuation ratios (pardon the pun), but it confirms what I'm seeing in sentiment and allocation models.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I am net neutral stocks.

Stocks: SPY, QQQ