A ‘long-term top’ is taking shape in the market, and these stocks could bear the brunt, investor warns

A ‘long-term top’ is taking shape in the market, and these stocks could bear the brunt, investor warns

In 2000, it was all about the likes of Qualcomm

and an assortment of doomed dot-com stocks. Two decades later, and the players may have changed, but the stock-market story rings familiar, according to Luke Palmer of the Bear Traps Report blog.

“Renewable froth” is a prevalent theme in the current equity bubble, he explained, considering the wild performance of highfliers Plug Power
Enphase Energy

and, of course, Tesla

“Not only are renewables trading at sky-high valuations, but price-to-sales ratios in growth stocks as a whole are now above their 2000 peak,” Palmer wrote, referring to this chart:

Palmer singled out Cisco Systems
in particular, as an example of when a good company with a bright future can still wreak havoc on a portfolio.

“Despite becoming a very successful company over the past twenty years, now employing over 80,000 people, Cisco is still -45% below its 2000 peak!” he wrote. “The important thing to remember is when equities become this overbought on a long-term technical basis, they are pricing-in DECADES of success. Everyone knows renewables are the future of power-generation, that does not mean these valuations are sustainable in the near-term.”

And it’s not just top-heavy renewable energy stocks that have Palmer concerned. He warned that S&P 500 index’s Relative Strength Index, an technical indicator of momentum used to determine overbought or oversold conditions, suggests trouble ahead for the bulls.

“Just like the dot-com peak, the quarterly RSI in the Index has been fading lower for a few years (loss of momentum), while the S&P 500’s price has hit new highs, this is MEANINGFUL bearish divergence,” he wrote. “In our view, we are close to a long-term top.”

No sign of a top in Wednesday’s upbeat trading session though, with the Dow Jones Industrial Average
tech-heavy Nasdaq Composite

and S&P 500

all moving nicely higher ahead of the Christmas holiday.

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