(7/19/14)
It's funny to listen to analysts and the Federal Reserve argue
whether the market is overvalued or not. As
I pointed out a few weeks ago the Inflation Adjusted S&P Composite is near
the top of its longer term upward channel (red line) which has acted as
resistance in the past (points A). The upper channel is roughly 100% above
the long term Exponential Regression Line. Meanwhile to be fair it's possible
the market could become even more overvalued like occurred in the late 1990's
and mid 1830's when the Inflation Adjusted S&P Composite was able to rise
150% above its long term Exponential Regression line (points B). In
order for the S&P 500 to rise 150% above its long term Exponential
Regression line it would have to reach a price of 2600 which is roughly 30%
above current levels. Finally even if the S&P 500
is able to pull off a miracle and rise another 30% within the next 18 months
what follows will not be pretty based on previous occurrences. After the
S&P peaked in 2000 and way back in 1835 substantial corrections followed
(points B to C) which wiped out all of the previous
gains.
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