Are Stocks Really Values Now?
Stocks
rallied into the end of the third quarter as mutual funds continued
with their window dressing. Most investors feel that many stocks are "cheap,"
especially
since the majority of stocks have slid to levels not seen for a number of years.
Is this really the case? Well if we
take a look at the
forward
earnings yield for the S&P 500,
we see that the yield is
still below bond yields,
which indicates at best that stocks are at fair value, but not cheap. Most
analysts have the optimistic view that next years’ earnings will be at or above
their cyclical peak levels,
which
were quite high.
In my analysis (I don’t mean to be
negative), I don’t think we have made the bottom yet. Why? Well,
for one
thing the markets are oversold, but not at levels that we have seen in past
bottoms. If you look at the NYSE stocks,
many have not fallen to levels that were seen in prior bear markets. I am not
saying I am correct or will be correct and I hope I am not. Just sharing some of
my observations. Until we get a confirmation we will just do what we have been
doing…be selective and continue to trade with caution.
Right Management Consultants (RMCI)
broke out of a base with handle (2 day handle) today. The career management
company had been scaling higher on the right side of its multi-week base.
Revenues have been growing at a nice pace (0%, 6%, 29% and 77%) as did earnings
(-17%, 24%, 23% and 121%).
Spectralink
(SLNK)
has retraced 62% and bounced off the Fib level which indicates it may resume its
trend up. Fundamentally, the company has shown some impressive earnings and
revenues growth. Earnings have been growing (25%, 9%, 80% and 83%) and sales
have been steady (36%, 39%, 22% and 30%). Continue to keep this on your watch
list.
Among the ETFs which look interesting,
the Software HOLDRs (SWH)
has formed a descending symmetrical triangle. The overall trend is down for the
fund and it appears that it may resume its trend lower.
And the Biotech HOLDRs (BBH)
pulled back from their lows and closed weak. The weak close indicates that the
recent rally off the lows may be overdone.
Remember that all securities are
risky. In any trade, you should always reduce your risk by adjusting position
size and placing open protective stops where you will sell your long or
cover your short in case the market turns against you. For an introduction to
combining price stops with position sizing, see Loren’s lesson, Risky
Business.
Have a great weekend!
Greg
P.S. I look forward to
meeting you all in Las Vegas next week at Tradingmarkets
2001!