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Chart from Jim Paulsen shows market still cheap by 25%

A trader on the floor of the New York Stock Exchange
Victor J. Blue | Bloomberg | Getty Images

A surprisingly simple chart from Jim Paulsen, chief investment strategist of Wells Capital Management, gives bulls some ammo in the market valuation debate, showing that even after a seven-year advance the stock market is trading at a discount relative to its post-WWII price return trend.

Wrote Paulsen in a chart-filled report this week:

"Most traditional valuation guides suggest the stock market is becoming stretched. Combined with a lengthy bull market which has already achieved large gains, many are turning more cautious towards the prospects and risks currently facing stock investors. However, trendline analysis challenges this current consensus view. Earnings fundamentals continue to oscillate about post-war trend levels while much of the U.S. stock market remains remarkably cheap relative to its post-war trend."

Here's the chart: