To get back to the lower trendline we'd have to get down to a P/E of 7 it appears. So assuming earnings stay the same (a very optimistic assumption) that would cut the sp500 in half again. So I'd say probably not cheap.
Risk free money was yielding 15%+ back then. Risk free money yields 0%-3.5% depending on where you are on the yield curve right now.
With a current P/E of ~18 it's far from cheap. In my book the markets will decline a lot more before it's in "value" buy territory.. http://www.decisionpoint.com/TAC/SWENLIN.html
Since 2000 and 2007, stocks have gone from being "overvalued" to "fairly valued". They still need to become "undervalued" where P/E's are in the mid-single digits and dividend yields are in the high-single digits. We may really have to re-live the 1930's. :eek: