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ValuEngine Issues Market Overvaluation Warning

Valuation WARNING is ON

ValuEngine Issues Market Valuation Warning

ValuEngine has issued a market valuation warning as of today, February 4th. Our overall market overvaluation and overvalued by 20% or more figures have reached levels which have been correlated with market pull backs in the past. This is a time for investors to keep a close eye on the market and to consider booking some profits and perhaps hedging against a move to the downside.

The ValuEngine Valuation Model tracks more than 8000 US equities, ADRs, and foreign stock which trade on US exchanges. The model calculates a level of mispricing or valuation percentage for each equity based on what the stock should be worth if the market were totally rational and efficient--an academic exercise to be sure, but one which allows for useful comparisons between equities, sectors, and industries.

We track market valuation figures and use them as a metric for making calls about the overall state of the market. Whenever we see levels in overvaluation levels in excess of @ 65% for the overall universe and/or 27% for the overvalued by 20% or more categories, we issue a valuation warning. As of Friday's close, we now calculate that 65.16% of stocks are overvalued and 27.42% of stocks are overvalued by 20% or more.

The chart below tracks the valuation metrics from June 2012 until today.

This chart shows overall universe valuation in excess of 60% vs the S&P 500 from the end of March 2010 to the present. Here you can see the market metrics from our last series of Valuation Watches and Warnings.

In addition to the overall valuation metrics, we see that on a sector basis ALL sectors are calculated to be overvalued. Ten of them are calculated to be overvalued by 10% or more with four of them calculated to be more than 20% overvalued. In the past, our Chief Market Strategist Richard Suttmeier has used the sector valuation figures to buttress his macro market calls. This is another indicator that stocks are no longer the bargain they were a few months ago and that investors should consider implementing additional risk management tools and/or booking some profits.

Market Overview
 

 

Summary of VE Stock Universe

 

Stocks Undervalued

34.84%

Stocks Overvalued

65.16%

Stocks Undervalued by 20%

14.37%

Stocks Overvalued by 20%

27.42%

Sector Overview

Sector

Change

MTD

YTD

Valuation

Last 12-MReturn

P/E Ratio

Aerospace

0.77%

0.82%

5.59%

7.12% overvalued

6.55%

14.56

Auto-Tires-Trucks

1.01%

1.06%

7.19%

8.64% overvalued

4.69%

15.5

Basic Materials

0.42%

0.52%

4.30%

7.82% overvalued

-23.15%

31.7

Business Services

0.74%

0.81%

7.21%

11.95% overvalued

9.43%

31.12

Computer and Technology

1.20%

1.31%

8.04%

16.99% overvalued

3.08%

40.06

Construction

0.45%

0.49%

9.14%

24.44% overvalued

27.91%

43.5

Consumer Discretionary

0.38%

0.48%

8.13%

10.30% overvalued

10.52%

27.95

Consumer Staples

0.59%

0.73%

5.57%

28.84% overvalued

12.16%

23.95

Finance

0.76%

0.81%

7.51%

18.15% overvalued

16.29%

22.84

Industrial Products

0.29%

0.60%

6.57%

22.56% overvalued

5.63%

24.93

Medical

0.68%

0.81%

7.34%

17.61% overvalued

9.25%

32.1

Multi-Sector Conglomerates

0.60%

0.64%

4.27%

9.43% overvalued

13.08%

14.93

Oils-Energy

0.71%

0.80%

8.50%

8.14% overvalued

-9.78%

41.3

Retail-Wholesale

1.18%

1.91%

9.86%

16.97% overvalued

17.38%

37.11

Transportation

0.51%

0.54%

11.14%

25.29% overvalued

5.83%

25.9

Utilities

1.23%

1.48%

7.51%

8.62% overvalued

9.29%

18.02

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