Looking to lock-in short-term gains for the tech stocks (page 1 of 3)

US Stocks

Positives:

-victories on the military front
-strong retails sales for the month of October
-consumer sentiment according to the University of Michigan survey showed a rise so far in November
-the dollar has firmed in recent months
-corporate earnings may be reaching bottom
-oil prices is at two year low

This burst of optimism has seen investor poured cash into equity funds.

The Taleban is retreating in Afghanistan, but neither Osama Bin Laden nor his terrorist network al-Qaeda has been captured or destroyed. The 7.1% rise in the advanced retail sales was powered by zero financing of auto sales. Consumer confidence is fragile and would deteriorate with any setbacks in the military or economic front. Japan is sinking into a recession again, and in the US, there is a whiff of deflation, not only in prices, but also in production, and employment. The low oil price is a result of declining demand due to a global slowdown. Sales may have stabilized, but companies are still giving low guidance for the 4Q and claiming 2002 is too murky to call.

Furthermore, many stock valuations remain high by historic standards. The observation is that stocks have corrected substantially from the top; it should be the bottom. The fact that stocks could have fallen so much and still be expensive, is perhaps a reflection of how perceptions went beyond irrational exuberance back in 1999-2000.

Looking back with the P/E from September 30 2001 based on trailing 1-yr earnings. The chart dates back to 1882, with a 10-year interval, and a P/E of 5 with an increment of 5

Though the current P/E is below the levels of March 2000, it is still high by historical standards. In fact, since 1950 only about 5% of the monthly observations are above the Sep-30-01 value. Current P/E is only slightly below the pre-1929 crash level. It is certainly not cheap, and it is not a time to be brave, but safe.

Viewed in that light, the 'Global Value Opportunities' offering or value stocks in general may be a good way to balance the risks of staying invested in growth stocks or in tackling what is likely to be another volatile year for equities in 2000.


US Technology

On a week-on-week basis, the NASDAQ Composite Index gained a further 3.8% to 1898.

We have been highlighting (for 2 weeks) the increased risk that NASDAQ stocks will potentially weaken on profit-taking. Though stock prices have continued to rally, the rate of appreciation has slowed which we believe indicates a potential short-term exhaustion in positive buying sentiment. We continue to believe that the risk remains high at current levels as short-term investors would be looking to sell on profit-taking and potentially take stock prices temporarily lower. We recommend investors to be cautious in initiating any new investments at the current time. We recommend investors who bought technology stocks like Intel Corp (INTC US, $30.63, CSFB rating: Buy), Cisco Systems (CSCO US, $20.02, CSFB rating: Buy), and Dell Computers (DELL US, $26.60, CSFB rating: Buy) to SELL a portion of their profitable holdings and lock-in short-term gains.

We believe price volatility on stocks listed on NASDAQ will remain high as we approach the year-end. This also suggests that there will be ample opportunities to BUY again at lower levels.

Two weeks ago, we highlighted a strategy called "Zero-Cost Averaging" to help reduce risk in a volatile investment environment.