Overvaluation

Here Im going to try to give you an idea of how over-valued the market (using the Dow-300 is compared to the known historical correlation between the Dow-30 and the Euro.

First the charts..

 The Euro is in red vs the SPY in green, you can see the Euro did not move above Friday's highs while the SPY did, so we know there's a dislocation in value and the idea of a reversal is a return to the mean which usually is overshot to the downside as fear is stronger then greed, thus the reason markets fall about 4 times faster then they rise.

Here's the highs today in the Euro and the present price, we'll start with that. As of this capture we have a 92 pip move down in the Euro from the US open to the capture. That translates to a 184 Dow point decline from the highs. The DOW is actually pretty close at a 165 point decline, which says a little something about the change in character observed between the correlations which have been skewed the other way badly.

On a longer term scale...

According to our oscillator which is at an even correlation or the normal around the zero line, you can see that at the res trendline, the Euro has gained until now, 117 pips or 234 Dow Points. The Dow over the same period has travelled 740 points, meaning the DOw-30 according to the historical EUR/DOW-30 correlation is overvalued by 506 points or should be trading around 11,547! This is a rough correlation, but does a pretty good job in telling us just how far off equities are. Here's what current fair value according to the correlation would put the Dow if the Euro stayed put and didn't move.

The Credit/Risk indicators have shown very large dislocations between traditional risk assets and the move in equities, so this "fair value" isn't that hard to believe and again, that assumes the Euro were to stay put at these levels.