See this short guys perspective if you don't see what I speak of.
thestreet.com
Excerpt from TSC on the overvaluation regarding CSCO:
If the data start to show a slowdown, "the Fed will come to its senses
and do only one more hike" this year, says Peter Canelo, U.S.
investment strategist at Morgan Stanley Dean Witter. He believes the
leadership once the market breaks out of this slump (and he does
believe that will happen) will be dominated by "good companies from the
old economy."
That last statement illustrates the problem with sector bets right now.
It's a theory repeated by several strategists that the way to go may
not be to concentrate on sectors, but rather on stocks with P/E ratios
that rank in the bottom half of the S&P 500.
Are they poised for a move? Small caps like the S&P 600 Small-Cap Index
have not gotten back on track since the entire market dropped in March
and April. Of course, many of these low P/E stocks have been touted for
a long time and haven't produced, but with technology spending expected
to slow (and growth as well) it's much harder to justify a bet on the
same technology stocks.
Canelo does foresee a time to get back into technology names. He says
if the Fed is near the end of its current phase of tightening,
technology leadership should reassert itself sometime around the
presidential election and propel the market through 2001.
"I think you go back to tech before the end of the year as soon as you
start to see more conviction about the slowing," he says. "We know that
there's going to be the same old leadership problem. Cisco
(CSCO:Nasdaq) and other very high P/E stocks may go sideways for a long
time." He compared Cisco's valuation to Wal-Mart's (WMT:NYSE) in the
1980s, a stock that eventually could no longer justify its valuation
and went sideways for more than four years, despite the company's
quality.
>>hopeless capitulation.
That is ALWAYS reflected in the P/C ratio and it is not right now at .41. See Schaeffers Research Online for the P/C data. Plus remember the 20month MA is about to break for the first time since 98 and only the third time since 82.
Remember though that the market was historically overvalued last year at 2500 when it blew off its top to 5000 and interest rates were a full point lower, so it should go much lower just to equalize that sense of overvaluation. No i am not trying to erase the overvaluation, since that would take a move to about 1400! I am just looking for the inevitable retracement of a parabolic move we saw in Oct to Mar time frame. It will be erased. No terror in it for me.
Still too much margin out there, one more time.... |
