Approximately, 24% of the market is in the combined SELL WATCH/SELL classification and 20% in the combined BUY WATCH/BUY classification. This is a much better, balanced condition, than what we experienced at the end of 2017 when 24% was solidly in the single SELL/Overvalued classification and only 11% in the single BUY/Undervalued classification.
Last year there was every sign of a market heading full tilt into overvaluation. Today, valuations are a better reflection of market conditions than either February a year ago, or December. Last year was full of high expectations and a never ending “synchronized global growth” melody, followed in December by a good rendition of “The Sky is Falling”. Today’s valuations are realistic
The corrections that took place in the last quarter of 2018 moved the market from an overvalue tilt to an undervalue tilt and opportunity. Many of the stocks that were overvalued, classified as SELL/SELL WATCH moved back to reside within the fair value range. Thirteen percent moved out of SELL/SELL WATCH to HOLD. HOLD grew from 62% to 67%. Just as overvalued stocks moved back into fair value, fair value stocks fell into undervalue. Eight percent of the overall market moved into BUY/BUY WATCH classification.
Valuations are near neutral at 102.3% Fv. The rate of negative adjustment continues to slow giving up just 1.4 valuation points, again half of the previous period rate, which was also half of the prior rate. LargeCap surrendered the most last period, but this time Smallcap gave up 7 times what LargeCap surrendered and MidCap gave up three times as much.