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Paul,

Your post about "this time it's different" is absolutely on the mark. Further evidence of the throwing caution to the wind is that we're already seeing people wanting to tout stock ABC with virtually no regard for the its valuation. You'd think they'd learn after the recent tech wreck which, as you say, may not be over.

--Mike Buckley
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I have not done so but it would be interesting to compare technology valuations (PSR, PE, PEG) to one year ago. I suspect that they have not dropped by very much. These valuations were not justifiable then when people thought technology would grow forwever. How can they possibly be justified today. Even if 'it can't get worse' I seen no reason to believe that the growth rates of the late 90's will return to technology anytime soon.

Any bulls out there? Can you tell me what you see that I am missing?

Paul
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I have not done so but it would be interesting to compare technology valuations (PSR, PE, PEG) to one year ago. I suspect that they have not dropped by very much. These valuations were not justifiable then when people thought technology would grow forwever. How can they possibly be justified today. Even if 'it can't get worse' I seen no reason to believe that the growth rates of the late 90's will return to technology anytime soon.

Any bulls out there? Can you tell me what you see that I am missing?


Well, technology in some shape or form will grow forever. Of course, forever has plenty of lazy, hazy days along the way. I don't think that expectations for late 90's IT growth rates to resume in a broadbase manor are permeating the minds of investors. The growth comes in waves (cyclical). Some of the waves are more powerful and forceful and go up the beach more than others. The late 90's going into Y2K wave was certainly a 'hang ten' wave on the surfing scale. Many of the leaders of the 1999 - 2000 technology bull market, even though their share prices are down 60 - 80%, still show up on the ridiculously overvalued radar screen. Is there justification for the premiums being awarded to them in the midst of the 'bad news'? That's what is open to debate. All we can do is observe the trading ranges that these richly valued leaders are confined to and realize that it will take some anticipation of pretty healthy fundamentals to get them up and above some of the ranges. That will be most likely be a lengthy base building period and you know the usual suspects trying to go through this - BEA Systems, Brocade, Siebel, Juniper, i2, Emulex, Qualcomm, etc... .

In the face of the all the bad news and attempted "Let's pin the trough on which quarter's tail?" game, the market has been doing some damage control repair on certain layers of technology such as semiconductors and the chip equipment makers. Traditional trough or bottom for the semis comes when all the news is ugly, ugly, ugly. That doesn't mean that the market is discounting that 6-8 months from now things are going to be back to "hang ten" wave levels, but perhaps at least enough of the seaweed will be out of the way so that some smaller waves will still make waxing up the board worthwhile. Check the charts for some of the players in the semi space as well as chip equips to see what has been going on in terms of bottoming, base building, damage repair, etc... . Certainly an important group to watch in terms of leading the other layers of technology out of wherever it is.

Then again, take a look at the charts to see where companies like NVDA and IRF are sitting at the moment. There's always growth somewhere in technology.

[email protected]'sDamnGoodToBeEatingAgain.flubber
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These [high] valuations were not justifiable then when people thought technology would grow forwever. How can they possibly be justified today?

In his book, The Bear Book : Survive and Profit in Ferocious Markets (prophetically written in 1997), John Rothchild makes an interesting point -- in bear markets that are accompanied by periods of recession (recessionette?) like today, the e in the p/e ratio falls for most companies. Thus, even as the p falls, the valuation remains unjustifiably high. As the economy turns around, companies start to surprise, the e rises, and the issue suddenly looks much more reasonably valued. This, in turn, can positively affect the p. Not saying this applies to today's NASDAQ, but it's an interesting point to consider.
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Is there justification for the premiums being awarded to them in the midst of the 'bad news'? That's what is open to debate. All we can do is observe the trading ranges that these richly valued leaders are confined to and realize that it will take some anticipation of pretty healthy fundamentals to get them up and above some of the ranges.


Bruce, have you read Trader Vic? Of the five intro to TA books I have read lately it was my favorite. Clearly he is an extremly intelligent man. He would advise keeping an eye on the trading range and the economics. His interpretation of Dow Theory also says that it is very difficult to tell the difference between a new bull market and a bull rally in a long term bear.

BTW, my read on the NASDAQ chart is that it is not in a trading range but in an a two month uptrend. Every high is a higher high and every low is a higher low and the trend channel has been confirmed three times at the top and bottom. I think you could even call the NASDAQ a flag pattern today - which is very bullish.

Is there justification for the premiums being awarded to them in the midst of the 'bad news'?

I should have used sustainable instead of justifiable. Are the valuations sustainable? I don't know but it doesn't 'smell right' to me.


Check the charts for some of the players in the semi space as well as chip equips to see what has been going on in terms of bottoming, base building, damage repair, etc... . Certainly an important group to watch in terms of leading the other layers of technology out of wherever it is.


I wish most charts were basing - that would make sense. My trouble is that they aren't basing they are uptrending - semi's, computers, software are all in uptrends. Almost perfect V bounces. Only network equipment is still in a clear downtrend.


Then again, take a look at the charts to see where companies like NVDA and IRF are sitting at the moment. There's always growth somewhere in technology.


I would add MSFT to your list of good looking charts.

There are bullish signs everywhere. I agree. Except in growth. And there's the rub.

Paul

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Paul,

Can you tell me what you see that I am missing?

I think stock picking is always critical. I don't follow the entire market, and I don't even record PEG ratios of the stocks I own, but I'll offer a couple comments about the three that comprise three-fourths of my portfolio in context of your question.

Siebel, Qualcomm and Gemstar all have enjoyed increasing sales and earnings (no warnings and they met or beat estimates). Yet all of their stock prices are lower. Therefore, all of their PSRs and PEs are a lot lower. (Gemstar is losing money thanks to its acquisition of TV Guide, so it has not PE; but its EBITDA is improving so price-to-EBITDA is improving.)

I remember that Siebel's PEG ratio near its high was well north of 5. I haven't calculated it recently but I do know it's a lot lower than that.

If you're asking if I'm anticipating a bull market in tech stocks, I don't have a clue. If you're asking if I'm comfortable with my long-term investments in the likes of those three stocks, yes I am.

--Mike Buckley
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Bruce, have you read Trader Vic? Of the five intro to TA books I have read lately it was my favorite. Clearly he is an extremly intelligent man. He would advise keeping an eye on the trading range and the economics. His interpretation of Dow Theory also says that it is very difficult to tell the difference between a new bull market and a bull rally in a long term bear.

Hi Paul,

I just finished Trader Vic and agree with your nice comments about Vic. What other books did you read as intro to TA?


ElfLord
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Bruce, have you read Trader Vic?

Yes. I've read all but one of the books on the Burrow list. Vic was the first I read.

I should have used sustainable instead of justifiable. Are the valuations sustainable? I don't know but it doesn't 'smell right' to me.

That's a better word. Well, as we see the warnings come in - be it for high multiple or even low multiple stocks - the premiums are not being sustained on an individual basis. Especially in the weaker groups. Whether you are talking about Callaway Golf, Juniper Networks or some of the others that warned today - the haircuts are being given. One day at a time to see which industries emerge and sustain the premiums for the dominant leaders. The networking industry has been lagging some of the other industries in technology in terms of the 'trough', so the networking index has some more work to do and work through - painful though it is for those of us invested in companies.

I wish most charts were basing - that would make sense. My trouble is that they aren't basing they are uptrending - semi's, computers, software are all in uptrends. Almost perfect V bounces. Only network equipment is still in a clear downtrend.

I don't think we can put each industry and group in the same exact spot in the business cycle. Hence, we won't find similar charts in everything technology related. In addition, some groups bottom out traditionally at different points than one would think. Take a look at a chart such as AMAT, or INTC or LSI for example. We see a lot of "V" charts at the moment due to the sharp bounce off of that April 4th low. By the time we've worked all the way through the basing patterns of each industry, that "V" might not be so prominant. Who knows?

I would add MSFT to your list of good looking charts.

Yes, largely driven by the "N" with their new products coming out and the anticipation of seasonal factors in the second half for the PC industry. Different growth story here though than the two I pointed out (IRF and NVDA).

BB


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The Visual Investor - John Murphy
How to Make Money in Stocks - William O'Neil
Making Money in Bull and Bear Barkets - Weinstein
The Fourth Mega Market - Ralph Acompora

I also have read everything from dbphoenix's web site and I keep a fifty stock/index watch list at clearstation which I check most days.

Paul


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Yes, largely driven by the "N" with their new products coming out and the anticipation of seasonal factors in the second half for the PC industry. Different growth story here though than the two I pointed out (IRF and NVDA).


Microsoft is certainly an "N" play. It is also an "X" (ex anti-trust) play. As bizarre as this might sound, I think that Microsoft may be a much larger growth story than seems possible.

Paul
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