September 12, 1999
Last week, the Dow Jones Industrial Average was down 50.02 points to 11,028.43 (-0.45%), the Nasdaq Composite was up 43.95 points to a record high of 2887.06 (+1.55%), the S&P 500 was down 5.51 to 1351.66 (-0.41%) and the Russell 2000 index of small cap stocks was up 5.52 to 440.25 (+1.20%).
For the year, the Dow is up +20.12%, the Nasdaq up +31.67%, the S&P up +9.96% and the Russell 2000 up 4.56%. The StockMotions Newsletter Tracking Portfolio is up 46.88% for the year. [much profit taking occurred during the week?the portfolio now holds a 71.31% cash position]. To automatically receive portfolio updates before they happen, you may sign up at:
stockmotions.com .
The tech stocks are stealing the show?but the question now becomes ?for how much longer??
As an exercise in curiosity, I put together a spreadsheet of 13 of the heaviest weighted stocks in the Nasdaq 100 and added to it three NYSE tech giants (IBM, HWP and TXN). What I was searching for was whether or not next year?s earnings were already priced into these stocks. Let?s look at the results.
Ticker Price 99 EPS 99 P/E 2000 EPS 00 P/E EPS Growth Last Surprise
AMAT 78.75 1.72 45.78 2.78 28.33 61.63% 15.09%
QCOM 165.6875 2.34 70.81 3.62 45.77 54.70% 19.05%
WCOM 79.1875 1.97 40.20 2.88 27.50 46.19% 0.00%
DELL 49.5625 0.76 65.21 1.02 48.59 34.21% 11.76%
TXN 90.625 1.65 54.92 2.12 42.75 28.48% 12.20%
CSCO 70.75 0.97 72.94 1.24 57.06 27.84% 5.00%
SUNW 85.6875 1.70 50.40 2.12 40.42 24.71% 2.13%
ORCL 46.375 1.05 44.17 1.30 35.67 23.81% 12.50%
LLTC 64.96875 1.51 43.03 1.83 35.50 21.19% 3.03%
BGEN 89 1.35 65.93 1.63 54.60 20.74% 6.25%
MSFT 95 1.56 60.90 1.84 51.63 17.95% 14.29%
INTC 87.375 2.29 38.16 2.69 32.48 17.47% -5.56%
IBM 135 3.91 34.53 4.49 30.07 14.83% 3.41%
AMGN 87.5625 1.95 44.90 2.21 39.62 13.33% 8.70%
HWP 112.25 3.62 31.01 4.06 27.65 12.15% 6.25%
AAPL 77.4375 2.83 27.36 3.08 25.14 8.83% 7.81%
AVG---> 88.45 1.95 45.39 2.43 36.37 24.79% 7.62%
The spreadsheet is sorted by highest EPS grower over the next year. Now here is the kicker?.if the determinant to being overvalued as compared to undervalued is to compare the earnings growth with the forward looking P/E (an extremely simplistic view), then only three of these giants are undervalued (AMAT, QCOM and WCOM). Everyone else could use a trim and some more than others?.
Admittedly, this is a very simplistic approach to valuation and it doesn?t account for the reliability of earnings that some of the ?overvalued? stocks have provided versus the choppiness of earnings performance by others (such as AMAT over the years ? a tech cyclical)?.but it certainly makes one wonder how much longer the tech party?s disregard for reality will continue without a healthy correction. [By the way, the above analysis was part of the reason for backing out of the tech holdings in the newsletter portfolio ? it?s not that I don?t like them, it is that these issues are looking a bit top heavy].
Volume, Volume, Volume
This week?s market was accompanied by higher than normal volume (normal being the corresponding 50 day MA of volume). For the Nasdaq, this is actually a positive, because the new high in the index was accompanied by significant volume. In addition, the new highs to new lows situation has actually been much healthier on the Nasdaq than on the NYSE. For the first time since July 19th, the NYSE had more new highs than new lows ? is this the start of a new trend? Are we really headed towards Dow 12,000? And Nasdaq 3,000?
The possibility certainly exists. Even the internet stocks are back into hyper mode?.some of which are probably on their way to visiting their old highs! Is this going to be a comfortable move? Not really.
If the market does get into an overheated move, I would be willing to bet that the Fed would raise rates again ? that would be the third increase ? at which point all the conditions would be in place for the bubble to deflate a bit?.
What was the reason for that tech rally again???
I sometimes get a good laugh at some of the reasons given for certain moves in the market. On Friday, the reason for the day for the tech stock move went something like this:
- Companies were encouraged with the successful passing of the 9/9/99 incident
- Companies will now be ready to spend again because the Y2K spending is out for the way
- This should spur demand for many tech products whether or not the economy slows and/or inflation rekindles.
Well, I thought that many companies spent oodles and oodles of money this year getting systems, PCs, etc Y2K compliant?.and one popular way of doing this was to replace the old 486s and old Pentium computers with brand new Pentium II?s and III?s?.and if that was the case (as it was where I work), then why would anyone expect the type of spending binge again next year???? I could be wrong, but that?s just what I have observed?.anyone else see the same observations this past year????
What the heck does all this mean?
The strong moves in some of the tech stocks are reminiscent of a blowoff occurring. If some of these reverse with heavy volume, we would have one of the first signals that the party would be coming to an end?for now?.possibly giving another opportunity somewhere down the road to hop onto some winners again [ this last ride was fun].
The Major Moving Averages
For those who are interested in the moving average levels, here they are. As of the close on Friday, September 10, 1999: The Dow?s 200 day MA is at 10180.60, its 50 day MA is 10994.30. The 200-day MA is in an uptrend and the 50-day MA is in an very slight uptrend. The Nasdaq 200day MA is 2462.30, and its 50-day MA is 2708.30. The 200-day MA is in an up-trend, the 50 day MA is also rising. If any reader would like to see the charts that indicated the relative movement of the 50 day MAs on the Dow and the Nasdaq, please click on
stockmotions.com for the Dow and
stockmotions.com for the Nasdaq. |
