We have to abide by the rules of the great and mighty HFT programmer hipsters and their love for all things technical analysis (and shunning of any mention of things luike PE ratios or price to book values!!!)…
The RSI on the S&P is around 65, the slow stochastic has moved into extreme overbought territory and stocks in general look to be at the top of the trading range. Our technically oriented market model is now in a short position here… Keep in mind any shorts should be hedged against dollar devaluation (gold, silver, commods, real estate, etc… are all OK hedges for dollar risk)…
Till next time, we would batten down YE Old hatches and prepare for stormier seas ahead, though we hope we are wrong and that the market goes higher forever (or at least 66% of the time like it says in the CFA level one manual…)
This year is shaping up to look a lot like last year — we had a 10% rally which was wiped out and followed by a 10% YTD loss… I think the same could happen and people will start panicking before too long. That said, we recognize that today’s gap down will likely be filled at some point so we took off some shorts and replaced them with put options. This way we can still participate in the down move but are risking just our profits from the trade on the short side.
While the market is decidedly below the 50 day moving averages, I always expect gaps to be filled eventually. In other words, expect a bounce back to retest the 50 day and close the gap followed by more selling. I think the down trend is here for the summer and I expect a repeat of last summer’s pain… Hate being right about the wrong stuff, but from a fundamental as well as technical standpoint, this rally seems to be over.
Here are seven fully valued (note the short-seller euphemism) stocks that could possibly tank big time because of overvaluation. Investors who are long these names should at least consider selling calls and buying some puts in our view as the recent rising tide has lifted some pretty leaky boats along the way.
The internet-related industries are undoubtedly the bright spot of today’s economy, but much of that growth is more than priced into many of the leading stocks in the internet industry. The following table shows just how expensive these stocks are. Keep in mind, over the past 100 years or so, the S&P 500(SPY) has averaged 14X peak earnings. Stocks also tend to trade for a small premium to book value — obviously internet businesses have economic moats that are valuable so this type of analysis is less effective in estimating intrinsic value. Still, numbers are all we have to go by and these names look expensive based on the hard data. High beta names often correct the fastest in market downturns as well.
NOTE: I would use stop loss orders or call option protection if you plan to short these as directional trades. Read more here:http://seekingalpha.com/article/449041-7-hyped-up-stocks-to-sell-short-now