More Examples of Extreme Market Overvaluation
* Equities are not broadening out
* Several time-tested valuation models point to downside risk dwarfing upside reward…
Yesterday I quoted from portions of The Divine Ms M’s column in which she delivered an important message that the market WAS NOT BROADENING OUT (contrary to those in the business media who have said the opposite).
Today I will touch on several valuation models (the Gordon, Greenspan and the Equity Risk Premium models) that are being ignored and that highlight the markets’ possible overvaluation.
Divine’s pearls of wisdom (and charts) were important enough to repeat in its entirety:
Mr. Market Is Not Broadening Out
*The McClellan Index (NYSI) is faltering, the Mid Cap Index ($MDY) is weakening, the Russell Index ($IWM) is not “crowing” nor is the equal weighted S and P Index ($RSP) participating in the markets’ recent advance…
Contrary to the near universally bullish narrative of most of the “talking heads” in the business media, the market is not broadening out — at least not as measured by the McClellan Summation Index, the Mid Cap Index, Russell and Equal Weighted S&P Indices.
Let’s look at the facts and charts, delivered by The Divine Ms M (Helene Meisler) on TheStreetPro this morning:
Stocks Are Sitting at a Crossroads
When we look back at the month of August, you might recall I had been of the mind that the ‘others’ would have a difficult month. It did not pan out as I envisioned. However, indicator-wise, you can see perhaps it has. Look at the McClellan Summation Index, which I think shows us what the majority of stocks are doing. It has been trending down for more than two weeks already, and if you squint hard enough, you can see it has made a lower low than late July and is closing in on the early June low.
If we look at the chart of the Mid Caps, we can see they are pretty much down on the month. The chart shows that rise early in the month that has been leaking without much fanfare for the last two weeks. It is coming into some decent support in the 685 area.
The IWM hasn’t escaped the same type of leakage. It too is back where it was in early August, having given up the gains that got folks so excited early in the month. It is also back where it was in June.
For all the hootin and hollerin about how great small caps were (are?) relative to large caps, the ratio of IWM to SPY says that narrative is wrong. That ratio peaked two months ago and just made a minor lower low. You can see it accelerated in the last week.
And what of everyone’s new favorite ETF, the RSP (equal-weight S&P)? Aside from the fact that the ratio peaked back in late February, notice all that supposed broadening out peaked in late July—exactly when the SOX/tech stocks made their lows. This ratio turned south last week as well.
When you see these charts, you can understand why in the very short term, the market seems oversold. But you can also see that the Either/Or Market remains intact.
BY Doug Kass · Aug 31, 2026, 7:30 AM EDT
Position: None
