can we short this ????

Discussion in 'Trading' started by andrasnm, Sep 28, 2001.

  1. OTC overvalued? Here are some numbers from a columnist:
    "Valuing the Nasdaq Composite Index is tough, due to the huge number of stocks and lack of earnings data. Obtaining a price-to-earnings ratio for the Nasdaq 100 index is much simpler. Detox calculates that the Nasdaq 100 is trading at 73 times 2001 earnings forecast by Thomson Financial/First Call, and 42 times expected 2002 earnings. That's frightfully expensive.

    (Note that the Nasdaq 100 is a weighted index. This means some companies' index weights are higher than their market capitalization, and vice versa. If you adjust forecast earnings to bring them into line with index weights, as one should, the 2001 P/E goes up to 103, while 2002's jumps to 52.)

    Many have talked about valuations coming down as earnings rebound in 2002. But the 2002 estimates used here already are predicting a rip-roaring recovery. Weighted aggregate Nasdaq 100 earnings are expected to be $25 billion for 2002, nearly double the $13 billion forecast for 2001. (Unweighted earnings are targeted at $18 billion for 2001 and $31 billion for 2002.)

    Next, let's be insanely generous and assume that the Nasdaq 100 trade deserves to trade at 40 times those weighted 2002 earnings. That would give the Nasdaq 100 a market cap of $1 trillion, and an index value of 915, 23% below Tuesday's close. Apply the same drop to the Nasdaq Composite index and you get 1155. "

    here's link to the complete article:

    Comments appreciated.
  2. Gives you an idea of how insane the bubble was before it burst. If you go back to late 80's and draw the trendline from there forward in line with a "normal" rate of growth, it tells me that the Naz will retrace to around 900 and probably below because of the normal overreaction. Just my opinion and I hope I'm wrong.
  3. dozu888


    Barrons has been saying NAZ "fair value" = 800-1200 for a long time.

    Not only will NAZ go to that range, but also the foreign money will flow out in the process, so we may see levels even lower.

    The US dollar will depreciate significantly once the "safe currency" myth bursts.

    Of course all this fundy analysis is really irrelevent to trading.
  4. sallyboy

    sallyboy Guest


    Take a look at the major sectors within tech. Many probably thought they were going to bottom near there Spring lows, but only hesitated and proceeded to fall precipitously from there. Examples to look at are the NWX (networking) & the GSO (software); now the NDX & COMP will follow. Even before September 11th it looked like the market would hesitate at the previous lows, then quickly fall from there as did the previously mentioned sectors. I expected similar things for the S&P & Dow. September 11th only accelerated matters.

    Granted, this will cause more pain for investors, but will ultimately flush out the final holders and get people really bearish. Then we can form a bottom and move up (albeit slowly). Think about how bullish sentiment was even at the Spring lows!
  5. all the "p/e valuations are very high(can subsitute for low) now" talk is bollogni. you can't trade on it. it's not worth even 2 cents.
  6. I agree that individual p/e's are of no value to a short term trader, however knowing the the market as a whole is overvalued is tradable information, inho, and has kept my bias slanted in the correct direction for some time now.
  7. tntneo

    tntneo Moderator

    a trend is a trend. until proven the contrary the trend is down.
    now we are likely to see a so called retest, if indeed this market is really trying to reverse is months long down trend.
    In E Wave theory that would be a wave 2. so shorting is reasonable. specially since it is hard to believe the down move stopped in just a few days. the V bottom callers are beaten to death for 18 months now, why this one should be the ONE (think about it). OK, they stopped calling for a long term V bottom a few months ago, but now after the tragedy they started again.

    The word of caution is, correction up are fierce in a downtrend, so the market may go higher before dying.
    a fundamental note of caution : not one bomb was dropped yet, not one man killed in battle since the tragedy . Are you really sure these events are already priced in the market : I don't think so Tim.

    I am out of any multiday moves at the moment. The market became a very dangerous place unless you accept bigger stops. Intraday moves were very noisy with volume (on NQ) coming and vanishing in choppy bursts. For my own account i have decided to be out and just watch the markets (in fact put them on heavy machine surveillance). but no actual trading. Things will get back to more regular ways, they arent now. It is possible to make money of course but it is also possible to just wait for better odds. In the meantime I can learn a lot about how market behaves in extreme conditions since I can actually look at it unbiased (no trades in).

    Cash is ALSO a position.
  8. As a wise man once said, "Being right too early is the same thing as being wrong". Think of all the people during the dot com bubble who knew that companies like YHOO and AMZN were way overvalued at $100 a share and shorted them only to get wiped out as the stocks continued to climb to $300 a share. The moral of the story is that, yes, I think we can all see the writing on the wall now about the dismal prospects for the stock market and the world economy coming, but taking positions too early can be the same thing as being wrong. We have to trade what we're given rather than time the movements.
  9. tntneo

    tntneo Moderator

    This is so true zBoy..
    That's why I stopped long term investments and studied trading (while arguably that's the same thing : trading. but it's another story).
    I was too often too early, and that brings only losses not cash.

    Besides the lack of discipline (sticking to the rules) ANTICIPATION is a trader's worst sin !
    I am still in rehab :)

    At least, I know now trading has 3 positions : long, short and cash.

  10. Magna

    Magna Administrator


    At least, I know now trading has 3 positions : long, short and cash.

    Amen to that, particularly the third option which I never considered prior to the Spring 2000 crash. Many people used to think of being in cash as dead money, wasted opportunity, etc. but cash is a very viable POSITION, not to be taken lightly.
    #10     Sep 29, 2001