Why Sell The NASDAQ 100?
On April 14, 2003,
we presented the chart below stating: "Short-term, it is evident that those who are short have to watch the December high of 1,155 points and should the Index close above this level, all short positions should be closed. "
This recommendation proved to be sagacious as the NASDAQ 100 pushed through the resistance area with ease within one month. But this was not all. By January 26, it had advanced to 1553 points.
So let's examine what the future course may be from here on:
The long-term picture
The long slide from the top of 4816 points reached in March 2000 down to 795 points in October 2002 (a mind-boggling 83%) gave way to a lengthy consolidation. The length and strength has taken many by surprise, raised hopes that the bear market is behind us and that we are on the way back to previous soaring highs.
To us, it does not look that way!
Since the beginning of this year, the US-markets have been losing strength continously. Nevertheless, we want to have a look at the medium-term picture to see more clearly what is happening.
The medium-term picture
The up-trend which started in April of last year reached a peak on January 20 and is unlikely to be superseded.
In March, the up-trend gave way to selling pressure and the market is trending down since. There is no indication at this time that this down-trend may end soon.
The short-term picture
It is therefore clear that we are in a down-trend and as long as the resistance zone between 1500 and 1550 points holds, we bet on the down-side.
Are US-markets fundamentally cheap?
The table below shows most of the top S&P 500 companies trading at high multiples.
It doesn't matter whether you look at P/E multiples, price-to-book or price-to-sales or even market caps. With the exception of Exxon Mobil, they all remain dangerously overpriced.
So the answer to the above question is a simple "NO".
The NASDAQ Volatility Index
This index has faithfully foreshadowed the future course of markets. While it is not easy to say which extreme" is the ultimate, sooner or later, the trend will reverse. As we see below, it has already started:
The following recommendations were valid at the time of writing, viz. at
and may no longer be relevant at the time of reading.
Peter Zihlmann
www.pzim.com
investment@pzim.com
forex@pzim.com
May 26, 2004
Disclosure: The author has not been paid to write this article, nor has he
received any other inducement to do so. The author is a shareholder in the
company and will benefit from any increase in the company's share price.
Disclaimer: The author's objective in writing this article is to invoke an
interest on the part of potential investors in this stock to the point where
they are encouraged to conduct their own further diligent research. Neither
the information, nor the opinions expressed should be construed as a
solicitation to buy or sell this stock. Investors are recommended to obtain
the advice of a qualified investment advisor before entering into any transactions
in the stock.
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