I sense a seachange. I think many good thinkers feel the market has been very overvalued and have been waiting for a fall. Well, I thought the same last summer and fall and only recently came to the conclusion that given interest rates and earnings, that the overall market is is only "somewhat overvalued". The very large caps (megacaps) are, I think, the truly overvalued and bloated stocks that I believe many are thinking about when they rave about absurd valuations. GE, KO, MRK, MSFT, CSCO etal. On the other hand, the techs and the small caps are pretty cheap. Semis selling for 1 or 2 times book (CY,LSI), microcaps for .5 of book (MRRW) etc. I think (read, hope) that we are in for some serious sector rotation, with the megacaps taking some hits, the techs and the smalls moving up, and the S&P 500 bouncing around, ultimately going nowhere. I'm shorting the big guys, holding the techs and smalls, and will bail alltogether if we get a significant blowoff, like S&P 1050 or so.
It feels good to short GE as a hedge for a down market, while holding pretty cheap stocks. I did think that SPY would be a good hedge, but while that index has a lot of big companies, overall it is diversified enough that in a sector rotation it won't tank as much as the mega's.
I was early this fall and may be early still but it sure feels better.
Karl |
