S&P 500 & Normalized CAPE Z-Score Analyzer

26 May

This macro-focused indicator visualizes the historical valuation of the U.S. equity market using the CAPE ratio (Shiller P/E), normalized over its long-term average and standard deviations. It helps traders and investors identify overvaluation and undervaluation zones over time, combining both statistical signals and historical context.

💡 Why It’s Useful
This indicator is ideal for macro traders and long-term investors looking to contextualize equity valuations across decades. It helps identify statistical extremes in valuation by referencing the standard deviation of the CAPE ratio relative to its long-term mean. The overlay of S&P 500 price with valuation zones provides a visual confirmation tool for macro decisions or timing insights.

It includes:

✅ Three display modes:
-S&P 500 (color-coded by CAPE valuation zone)
-Normalized CAPE (vs. long-term mean)
-CAPE Z-Score (standardized measure)

🎯 How to Interpret
Dynamic coloring of the S&P 500 price based on CAPE valuation:
🔴 Z > +2σ → Highly Overvalued
🟠 Z > +1σ → Overvalued
⚪ -1σ < Z < +1σ → Neutral
🟢 Z < -1σ → Undervalued
✅ Z < -2σ → Strong Buy Zone

-Live valuation label showing the current CAPE, Z-score, and zone.
-Macro event shading: major historical events (e.g. Great Depression, Oil Crisis, Dot-com Bubble, COVID Crash) are shaded on the chart for context.

✅ Built-in alerts:
CAPE > +2σ → Potential risk zone
CAPE < -2σ → Potential opportunity zone

📊 Use Cases
This indicator is ideal for:
🧠 Macro traders seeking long-term valuation extremes.
📈 Portfolio managers monitoring systemic valuation risk.
🏛️ Long-term investors timing strategic allocation shifts.

🧪 How It Works
CAPE ratio (Shiller PE) is retrieved from Quandl (MULTPL/SHILLER_PE_RATIO_MONTH).

The script calculates the long-term average and standard deviation of CAPE.

The Z-score is computed as:
(CAPE - Mean) / Standard Deviation

Users can switch between:
S&P 500 chart, color-coded by CAPE valuation zones.
Normalized CAPE, centered around zero (historic mean).
CAPE Z-score, showing statistical positioning directly.

Visual bands represent +1σ, +2σ, -1σ, -2σ thresholds.

You can switch between modes using the “Display” dropdown in the settings panel.

📊 Data Sources
CAPE: MULTPL/SHILLER_PE_RATIO_MONTH via Quandl
S&P 500: Monthly close prices of SPX (TradingView data)

All data updated on monthly resolution

This is not a repackaged built-in or autogenerated script. It’s a custom-built and interactive indicator designed for educational and analytical use in macroeconomic valuation studies.

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Sürüm Notları

🆕 [Jun 2025] — We've added a warning system to highlight an important behavior:

The normalized CAPE and Z-score calculations in this script depend heavily on the length of historical data available for the selected symbol.

If you're analyzing the S&P 500, make sure to use SPX or any symbol with long historical coverage, or else the statistical interpretation may be misleading due to a shortened lookback period.

A red warning label will now appear automatically when you're not using SPX.