Fun, i agree that valuations are so out of whack that not too many undervalued stocks (in the traditional sense, not in terms of 'relative value')can be found...however, there are some the valuations of which are so low as to make as much sense as the valuation of say AKAM or RHAT on the other end of the spectrum.
as to the overall market, i have actually never seen anything like this. on a day when we have 87 new highs vs. 472 new lows on the NYSE, the NAZ actually hits a new high, with the other indices pretty close to new highs...it's a unique situation. the a/d line divergence is now the second largest on record, and just as the time has come for analysts to pronounce 'outmoded' tools like the a/d line dead, imo the time has come for the divergence to meet with some sort of resolution. i am beginning to cautiously nibble at high-yielding totally out of favor stocks, which will probably see money flow into them once the current insanity marathon is over.
if there's a lesson of history that everybody needs to be aware of, it's that the previous record long a/d line divergences have ultimately brought on the two most severe bear markets in this century.
just to illustrate where we currently stand in terms of the S&P overvaluation measures, Comstock Partners has put together a table showing where the yardsticks concerned stood at market tops and bottoms in this century, where they are now, and by how much the S&P would have to decline to only reach the valuation measures prevailing at the average previous TOP:
Price-to-Earnings
8 bottom
21 top
31 NOW
32% decline to reach typical previous top
Price-to-Cash Flow
5 bottom
11 top
19 NOW
42% decline to reach typical previous top
Price-to-Sales
0.6 bottom
1.2 top
2 NOW
40% decline to reach typical previous top
Price-to-Book Value
1 bottom
2.4 top
5.9 NOW
59% decline to reach typical previous top
Dividend Yield
6.00% bottom
2.80% top
1.22% NOW
56% decline to reach typical previous top
Average Percent Decline needed to Reach Previous Valuation at MARKET TOP
46%
what does this tell us, aside from the fact that we are in a new era of valuation? it tells us that this market has completely lost touch with reality...no amount of spin can explain away the facts. considering that the majority of stocks is actually falling since the a/d line peak in April '98, it becomes even more glaring how overvalued the handful of stocks driving the indices actually are. interesting times await the 'investor' in 2,000 no doubt...
regards,
hb
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