And so ends another trading day, another trading week, and another trading month. Despite the calendar saying things aren't supposed to be this way right now, we just logged our second consecutive week of sizeable gains. All told, the S&P 500 advanced about 1.8% in May... much better than the average 0.1% gain we normally see for this month. One has to wonder if the odd bullishness we saw in May of 2014 is a hint that we're in for an unusually bullish spring and summer this year, or if it's all something of a setup for a pullback. Our forecast is still - mostly - for a flat to bearish period for stocks over the next few weeks, for a couple of reasons. One of those reasons is technical in nature, which my friend John Monroe voiced perfectly in the Elite Opportunity newsletter today. The other reason is fundamental in nature... the market's valuation has quietly become a problem again thanks to all this bullish persistence. Let's start with the technical hurdle we're now facing though, deferring to Monroe's take in today's EO: "Without even considering the possibility of the NASDAQ 100 and DOW failing on a test of their highs for the year, the first chart I've included below is that of the NASDAQ Composite's daily chart on a very short-term basis. I've drawn the most logical [Fibonacci] expansion levels based on the last three most recent waves of trading activity and as you can see here, we've finally achieved the highest expansion level there is, which suggests at least a modest pullback before it enters into a whole new pattern of waves." Now, some of you know what Fibonacci lines are while some of you may not. Don't sweat if you're not familiar with them because I can explain it in very simple terms - they're the market's hidden or largely-unrecognized natural, organic floors and ceilings. [There's more to them, but that's good enough for our discussion right now. If you really want to know more though, do a Google search for "Fibonacci lines" or "Fibonacci retracements" sometime this weekend. It will be time well spent, and you'll be a better-equipped trader for your effort.] Anyway, as John points out, the 4247 area was a major Fibonacci expansion level heading into today for the NASDAQ, and the composite brushed that level today. If there's going to be a pullback, this is the most likely place it would materialize. It's also worth noting most of the other major market indices recently bumped into key Fibonacci expansion lines as well, bolstering the correction argument. The whole pullback theory makes a lot of sense to me, and not just because I'm also a fan and student of Fibonacci lines. John's concerns also make sense to me because the market's chief goal is to vex most people most of the time. One of the most effective ways of doing that is to roll over right when it seems like everyone is sure it can do nothing but move higher.... kind of like now. I think it was in yesterday's newsletter we mentioned the media's seemingly been interested in - maybe even desperate to - publish stories explaining why now's the wrong time to sell and why stocks are actually undervalued and should go higher. Whenever everyone is singing the same song in perfect harmony (much like they are now), it's time to get worried. Underscoring the worry today is our updated chart of the NASDAQ. We can see the composite made a pretty strong intraday pullback today to log the first lower low in TEN trading sessions. It didn't stay at that low, but something's changed and the most likely explanation is, traders aren't really digging the way the weight of the recent runup is feeling. Never even mind the fact that stocks have been reversal-prone for weeks now, and perhaps due for the next one. With all that being said, there's another reason I'm a little worried here.... Have you ever noticed the media's usual market gurus only seem to care about the fundamentals when it jives with their opinion and/or the majority opinion at the time? I see it more often than you might think, and I've been seeing it quite a bit within the past few days - some highly-publicized people are saying stocks can justify higher prices than where they are now, but somehow these experts sidestep talking about the details of their valuation theory. Not us. If there's anything you know about us by now it's that we can't stand letting biases dictate the way we interpret data rather than the other way around. This is why we've always made a point of dissecting ALL the key numbers first, and then coming to an opinion about them. Now, we prefaced what you're about to see and read for a reason - we want you to look at the S&P 500's trailing and projected earnings and its trailing P/E levels with an unbiased open mind. See if you can honestly say stocks aren't overvalued. Here you go. As you can see, right now the S&P 500's trailing P/E is 17.6. I wish I could say if that was alarmingly high or not, but honestly, the concept of a "normal" P/E was obliterated by big marketwide losses in 2008 and the ridiculous valuations we were seeing in the late 90's. But, if a P/E of more than 18.0 was too high between 1991 and 1993, the market was certainly lethargic with such a high valuation then. A P/E of 18.0 was about all the market was willing to pay for stocks in mid-2008 too, though I've got a feeling most investors had a pretty good idea of what was on the horizon then, My point is, while there's no real empirical evidence of what kind of valuation the market will tolerate, anything above 18.0 feels like it's pushing its luck. Of course, the counterargument is, we don't own stocks for where they've been but for where they're going. What does the future look like? As of yesterday's figures and estimates the pros say the S&P 500 is valued at a forward-looking P/E of 15.4. That's a lot more tolerable than 17.6. I still don't know if there's room for higher stock prices above a forward-looking P/E of 15.4, however. To get there the market is going to have to grow its income by 14.4% over the course of the next twelve months. That's big. Sure, anything's possible, but I like the way John Monroe over at the SmallCap Network Elite Opportunity put it is this afternoon's edition of the EO newsletter, saying "The NASDAQ 100 and DOW both are testing their highs for the year, the S&P 500 is at a new all-time high, while the NASDAQ Composite and Russell 2000 continue to lag. This has been the theme ever since the April 15th bottom and if you believe there's enough news and growth to drive stocks higher over the next month or so, our hat's off to you because you're seeing something we're definitely not." I know he's talking about the next month and I'm using numbers for the next year, but we're actually talking about the same thing - the market has about a month (less, being realistic) to prove it should be trading at a trailing P/E of 17.6, let alone a higher P/E. If investors don't see something amazingly impressive between now and then that's encouraging for the long haul or the short-term, we can see June and/or July getting ugly as May's gains unwind. At that point, everything will rely on Q2's earnings reports in July and August. You've seen all the recent economic data like a weak GDP and tepid consumer spending though. Do you believe we're in a high-profit environment for corporations? We don't... at least not yet. That's just us though. Oh, one last thought before the weekend - how much better off would you and your portfolio be if you closed out 36 trades this year at an average profit of about 6.9% each? Yeah, well, these guys did it. Folks, those are per-trade results that could make even the best of hedge fund managers green with envy.