QQQ (NASADQ 100 technology stocks) is getting dangerously overvalued. The two biggest factors are: this week QQQ hit an 11 year high; and the corporate insiders are selling tech shares at an alarming rate. The other compelling issues which make QQQ so very dangerously overvalued are as follows:
- The recent media hype and bullish articles from market commentators such as Nouriel Roubini (“Mr. Gloom & Doom”), and the Aden sisters. When you have such strong media excitement it creates negative results for the NASDAQ market and risk assets overall;
- Strong fund flows of unsophisticated investors plowing money into ETFs like QQQ.
This is a classic set up for a market-top formation. There is still the possibility of an upside breakout for NASDAQ and S&P 500 index. Rest assured that if we have an upside breakout, then most hedge funds and momentum players will try to desperately get into equities. At that juncture the odds of the equities dropping will exponentially increase.
For now, try to read the most recent article from the Aden sisters published on Feb.17.2012, on MarketWatch, and then compare it with their call on Jan.03.2012 and Nov.22.2011. This is one of the biggest reasons why most investors buy high, such as now, and sell low, i.e. Aug 8th-October 4th, 2011.
- Feb.17.2012, U.S. stocks and gold to drive higher
- Jan.03.2012, In New Year, stick to safety
- Nov.22.2011, Volatile markets signal a 2008 repeat
As you all remember we moved into the equity market at the depth of the fear and when these so called gurus advised investors to avoid risk assets. Wow, now they are calling for entry into risk assets! This is precisely the time for us to be out of risk assets. All this provides evidence for our long standing guideline to buy when there is fear and sell during excitement.