NASDAQ Composite (.IXIC) glitters in a $7t glow
In a decade of extreme wealth creation in markets, few assets did more to enrich investors than stocks in the Nasdaq 100 Index. Their combined value jumped by more than $7 trillion, ending with the best year since the bull run began.
Powered by a near-doubling in Apple Inc. and gains exceeding 50 per cent in Microsoft Corp. and Facebook Inc., the tech-heavy gauge surged 38 per cent over the past 12 months – the biggest increase since 2009.
The Nasdaq 100’s red-hot run has been the triumph of a few stocks over many, a state of affairs that also sows concern. Megacaps Apple, Microsoft, Amazon.com and Facebook collectively contributed almost half the Nasdaq 100’s gains over the past decade, according to data compiled by Bloomberg. Add Google’s parent and Intel Corp., and the cohort accounts for almost 60 per cent.
But the giants of today are cheaper than the dot-com leaders. Amazon trades at 82 times earnings now, down from north of 300 in 2001. Cisco’s multiple also topped 300 back then. It’s now at 17.
Technology companies needed 15 years to recover from the dot-com crash, coming full circle in 2015. Since then, they’ve doubled again. But for all the rampant appreciation, the stocks still trade below their bubble-era highs relative to earnings.
While today’s valuation of 27 times annual profits isn’t cheap, it’s a long way from the triple-digit ratios in place when the dot-com rally crumbled.
“I told myself we’ll never see those valuations again in my lifetime and I still think that’s true,” said Doug Ramsey, Leuthold Group’s chief investment officer. “We’ve gotten closer than I would have expected, which I think is pretty remarkable only 20 years later.”
Leuthold keeps a study plotting earnings, dividends, cash flow and other measures to compare then and now, a kind of internet-bubble calendar that shows where the market is today relative to the 1990s. (It uses the S&P 500 as its benchmark, not the Nasdaq 100.) Going by that, it’s still only January 1998 – two years before the bubble burst.
Don’t go all out
Not that any two eras are likely to follow identical routes. Leuthold keeps the calendar mainly to show how crazy things got 20 years ago. But even if a crash isn’t imminent, the data isn’t an all-clear signal to keep buying, said Ramsey.
“If we’re going to match the greatest valuation extremes ever seen on large cap in history, there’s probably another 30 per cent upside,” he said. “It’s certainly not my expectation.”
Filtering the criticism
Tech stocks have been able to rally to records even as they were beset by bad news. Regulatory scrutiny is bearing down on the sector, with Democratic presidential candidates and President Donald Trump himself stepping up criticisms of technology firms.
Plagued by scandals, tech firms saw sentiment turn against them in the late 2010s – though not in the stock market. Users became more leery of their smart-phone providers and social media mainstays. Today, consumer advocates and some anti-trust enforcers are calling for the breakup of Amazon, Apple, Facebook and Alphabet Inc’s Google, among others.
But compared with the dot-com run-up, the fundamentals of today’s tech giants are much sturdier than they were back then, said Bokeh Capital’s Kim Forrest.
“In 1999, there was a lot of hope in the product because there was no revenue in a lot of those companies, or very little,” said the firm’s chief investment officer. “A lot of the high-fliers like Uber and these consumer-orientated tech stocks, they still are unprofitable, but the difference is they have some revenue.”
Not all tech stocks are on fire
In public markets, while earnings are better established, growth is getting harder to come by. Profits are likely to fall for many tech companies in 2019. Semiconductor stocks, for instance, are forecast to see a 15.4 per cent drop, and hardware and equipment firms are projected for a 6.8 per cent retreat. In 2020, the sector is set for a rebound, with earnings growth predicted to come in above 10 per cent, according to Bloomberg data.
“Tech stocks have more wiggle room from a balance-sheet perspective to plug issues whether it be too much debt or if they have a shortcoming in earnings,” said Matt Miskin, a market strategist at John Hancock Investments. “But at the end of the day they are growth stocks, and growth stocks typically trade on earnings and investors want growth.”
Cheap or not, they will be hard to dislodge, given their technological advancements and widespread consumer usage, according to John Hancock’s Miskin. “It’s not just for investors,” he said. “It’s a global phenomenon and it doesn’t look to be stopping just as the decade comes to a close.”
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 8,655.79.
The projected upper bound is: 9,124.38.
The projected lower bound is: 8,856.15.
The projected closing price is: 8,990.26.
A big white candle occurred. This is generally considered bullish, as prices closed significantly higher than they opened. If the candle appears when prices are “low,” it may be the first sign of a bottom. If it occurs when prices are rebounding off of a support area (e.g., a moving average, trendline, or retracement level), the long white candle adds credibility to the support. Similarly, if the candle appears during a breakout above a resistance area, the long white candle adds credibility to the breakout.
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 28 white candles and 22 black candles for a net of 6 white candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 47.0358. This is not an overbought or oversold reading. The last signal was a sell 1 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 71.24. This is where it usually tops. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 1 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 60. This is not a topping or bottoming area. The last signal was a sell 1 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 11 period(s) ago.
Rex Takasugi – TD Profile
NASDAQ COMPOSITE closed up 26.609 at 8,972.604. Volume was 3% above average (neutral) and Bollinger Bands were 42% wider than normal.
Open High Low Close Volume___
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 8,930.94 8,574.34 8,111.29
Volatility: 8 10 18
Volume: 614,010,304 547,868,992 548,387,712
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
NASDAQ COMPOSITE is currently 10.6% above its 200-period moving average and is in an upward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect moderate flows of volume into .IXIC (mildly bullish). Our trend forecasting oscillators are currently bullish on .IXIC and have had this outlook for the last 51 periods. Our momentum oscillator is currently indicating that .IXIC is currently in an overbought condition.
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