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(2/28/15)
From a historical perspective the Inflation Adjusted S&P Composite has a
well defined upward channel using a log scale. The green line is the
long term regression line while the red line is 100% above this line. The
blue line is 50% below it. As you can see the S&P Composite has
rarely exceeded the upper (red line) or lower (blue line) portion of the long
term channel. Currently the S&P Composite has risen back above the red
line for only the 7th time since the early 1800's.  Looking at the above chart in a
slightly different format, based on the distance from the long term regression
line, shows the S&P Composite is now 110% above it which is the 3rd highest
level on record. Only 1999/2000 and the mid 1830's had higher readings
which exceeded 150% at their peaks. 
Based on the distance from the long
term regression line the S&P Composite is certainly overvalued however as we
saw in 2000 and way back in the mid 1830's that doesn't mean it can't become
even more overvalued. At this point nobody knows exactly when the market
may peak, however, when the S&P Composite has risen above the upper part of
its longer term channel (red line) it has eventually reverted back to its green
line (points A to B). This is why I have concerns for
the market in the longer term. 
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