Last weekend I was looking at some fundamental data I update every few months for Premium Subscribers and noticed that Technology companies have a much higher Price to Earnings (PE) ratio than most other industries. The aggregate PE of the technology industry is about 19 while that of most other sectors and industries is between 8-15. I normally don’t care much about the stated fundamentals as they have been proven to be useless. Sometimes they reflect reality and sometimes they don’t. I watch the charts.
The charts for technology related indices are in a dangerous position. The bounce which started last fall was a reflex reaction to a market crash. Whether the fundamentals support the move or not is immaterial. After a crash there will be up to a 50% bounce in any stock or index. The prices are now pushing up against the 1×1 descending diagonal which almost always, (remember – no absolutes in the market), is a significant resistance angle. With the 180 day cycle on the calendar, the risk is increasing each day.
The computer hardware, software, and internet service provider charts below show a classic bounce pattern back to the 1×1 angle.
Telecommunications stocks have not bounced as much but are back at the 50% level of the previous bull market. This line did not affect the industries above but may stop this weaker set of stocks.
Note: The PE of companies in the Semiconductor sector is about 29 and the charts are not pretty.
Note2: I have begun selling any longs I have accumulated over the past year. The market may continue higher, but the risk is has reached a point when I don’t want to play anymore.
never seen before such an analysis on real charts. your assessment seems rght about the IT stocks.keep it up.
Rajeev – I’m glad you find the site useful.