In 2000, while it was all about the likes of Qualcomm (QCOM), Intel (INTC), an assortment of dot-com stocks were doomed. Two decades later, and the players may have changed, but the stock-market story rings familiar, according to Luke Palmer of the popular Bear Traps Report blog ( /).
"Not only are renewables trading at sky-high valuations, but price-to-sales ratios in growth stocks as a whole are now above their 2000 peak," Palmer wrote, referring to this chart:
Palmer singled out Cisco (CSCO), in particular, as an example of when a good company with a bright future can still wreak havoc on a portfolio.
"Despite becoming a very successful company over the past twenty years, now employing over 80,000 people, Cisco is still -45% below its 2000 peak!" he wrote. "The important thing to remember is when equities become this overbought on a long-term technical basis, they are pricing-in DECADES of success. Everyone knows renewables are the future of power-generation, that does not mean these valuations are sustainable in the near-term."
And it's not just top-heavy renewable energy stocks that have Palmer concerned. He warned that S&P 500 index's Relative Strength Index, an technical indicator of momentum used to determine overbought or oversold conditions, suggests trouble ahead for the bulls.
"Just like the dot-com peak, the quarterly RSI in the Index has been fading lower for a few years (loss of momentum), while the S&P 500's price has hit new highs, this is MEANINGFUL bearish divergence," he wrote. "In our view, we are close to a long-term top."
No sign of a top in Wednesday's trading session though, with the Dow Jones Industrial Average , Nasdaq Composite and S&P 500 all moving nicely higher ahead of the Christmas holiday.
-Shawn Langlois; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
December 23, 2020 10:47 ET (15:47 GMT)
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