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Book Profits on Tech Stocks

NEW YORK ( TheStreet) -- The rotation into tech stocks was a major fuel for stock market momentum (MOJO) that turned for the better following the June 4 low at 2727 on the Nasdaq. The Nasdaq began 2012 with a January 4 low at 2677, but by January 10 moved above my annual pivot at 2698 to stay.

The key on June 4 was staying above this important annual level. Year-to-date the Nasdaq leads the major averages with a gain of 22.1%, while setting a multi-year high at 3196.93 on Friday. On Aug. 9 I wrote Trading Technology and Telecom Stocks where I provided "buy and trade" strategies for ten stocks in the Technology Select Sector SPDR Fund (XLK) which traded to a multi-year high at $31.74 last week.

The Computer & Technology Sector is now 10.5% overvalued versus 4.5% overvalued on August 9. With XLK overbought on its monthly, weekly and daily charts, it's time to book profits in the tech sector.

The daily chart of the XLK ($31.51) is overbought and above its 21-day, 50-day and 200-day simple moving averages at $30.96, $30.08 and $28.63.

During the Tech Bubble of 1999/2000 XLF traded as high as $65.44 in March 2000, which cannot be shown on a daily chart. My annual and semiannual value levels lag at $25.48 and $23.92 with an annual pivot at $29.93 and quarterly, weekly and monthly risky levels at $32.18, $32.46 and $32.96.

Source: Thomson/Reuters

The above table shows data from www.ValueEngine.com covering nine Tech Stocks and I included Amazon.com, which is not a component of the Technology Select Sector SPDR.

Reading the Table

OV / UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-Engine" rating is a strong sell, a "2-Engine" rating is a sell, a "3-Engine" rating is a hold, a "4-Engine" rating is a buy and a "5-Engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last twelve months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next twelve months. Stocks with a black number in the Table are projected to move higher by that percentage over the next twelve months.

Value Level: The price at which to enter a GTC Limit Order to buy on weakness. The letters mean; W: Weekly, M: Monthly, Q: Quarterly, S: Semiannual and A: Annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: is the price at which to enter a GTC Limit Order to sell on strength.

Apple Inc (AAPL - Get Report) ($700.09 versus $619.86 on Aug. 9): Set an all-time high at $705.07 on Sept. 21. APPL has been rated a buy according to ValuEngine, has a reasonable P/E ratio and is well above its 200-day SMA at $557.52. Reduce your long position then employ a "buy and trade" strategy between my value level and weekly pivot and monthly risky level.

Below is a weekly graph of Apple between 1999 and 2002, which included the Tech Bubble. During the week of March 24, 2000 the tech bubble high for Apple was $37.59. The close for the week of December 22, 2000 was $7.50.

The second Apple graph covers the period from the end of 1998 to current. Note that the pattern from the first graph is barely noticeable at the lower left portion of this graph. The price action for Apple has thus gone parabolic, which is the prelude to a bubble, and when a bubble pops the downside is significant. Could the iPhone 5 be this century's Tulip Bulb?

Apple between 1999 and 2002

Source: Thomson/Reuters

Apple since the end of 1998

Source: Thomson/Reuters

Adobe Systems (ADBE - Get Report) ($33.83): Set a multi-year high at $34.78 on April 2. ADBE had a buy rating earlier this year but is now rated a hold, has a so-so P/E ratio and is above its 200-day SMA at $31.77. Reduce this position on strength to my quarterly pivot at $34.24 and then employ a "buy and trade" strategy between the value level and risky level. Adobe was a victim of the Tech Bubble falling from above $40 in November 2000 to $8.25 in August 2002, but this stock recovered to a post-bubble high above $48 in late-October 2007.

Amazon.com (AMZN - Get Report) ($257.47): Set an all-time high at $264.11 on Sept. 14. AMZN has recently been downgraded to hold from buy, has a ridiculous P/E ratio and is well above its 200-day SMA at $208.90. Employ a "buy and trade" strategy between the value level and risky level using the pivot as the first sell level. Amazon is well above its December 1999 bubble high at $113.00.

SalesForce.com (CRM - Get Report) ($155.20): Set an all-time high at $164.75 on April 19. CRM was a buy rated stock earlier in the year but is now rated a hold, has a ludicrous P/E ratio and is well above its 200-day SMA at $135.99. Employ a "buy and trade" strategy between the value level and risky level. Salesforce.com was not publicly-traded when the Nasdaq Bubble was inflating.

Cisco Systems (CSCO - Get Report) ($18.90 versus $17.16 on Aug. 9): Cisco remains buy rated, has a favorable P/E ratio and is just above its 200-day SMA at $18.53. Employ a "buy and trade" strategy between the value level and risky level. Remember that Cisco was an $80 stock in April 2000 just before the Tech Bubble popped.

Citrix Systems (CTXS - Get Report) ($81.19): CTXS had a buy rating earlier in the year, but has been downgraded to hold, has an elevated P/E ratio and is above its 200-day SMA at $74.92. Employ a "buy and trade" strategy between the value level and risky level. Citrix had a Tech Bubble high above $120 in March 2000 but has stayed below $90 on MOJO trips higher in both 2011 and 2012.

Google Inc (GOOG - Get Report) ($733.99 versus $642.23 on Aug. 9): set a multi-year high at $734.92 on Sept. 21, which is shy of its all time high at $747.24 set on Nov. 9, 2007. GOOG remains buy rated, has an elevated P/E ratio and is well above its 200-day SMA at $621.23. Employ a "buy and trade" strategy between the value level and risky level. Google was not publicly-traded when the Nasdaq Bubble was inflating.

Intel Corp (INTC - Get Report) ($23.13 versus $26.60 on Aug. 9): Set a multi-year high at $29.27 on May 2. Intel remains buy rated, has a favorable P/E ratio and is below its 200-day SMA at $26.20. Employ a "buy and trade" strategy between the value level and risky level. Intel was a $75 stock in September 2000 as the Tech Bubble was popping.

Qualcomm Inc (QCOM - Get Report) ($64.26 versus $61.45 on Aug. 9): QCOM was upgraded to buy from hold since Aug. 9, has an elevated P/E ratio and is above its 200-day SMA at $60.21. Employ a "buy and trade" strategy between the value level and risky level. Qualcomm had a Tech Bubble high of $100 in January 2000 and a 2012 high of $68.87 on March 27.

Five of the nine stocks profiled today are overvalued fundamentally with CRM overvalued by 69.4%. CSCO is the most undervalued by 16.1%. All nine have traded higher by 8.9% INTC to 70.6% AAPL over the past twelve months. In my judgment when the stocks above their 200-day simple moving averages roll over they have risk to their 200-day SMAs on the downside.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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SYM TRADE IT LAST %CHG
ADBE $80.75 0.00%
AMZN $437.71 0.00%
AAPL $126.44 0.00%
CRM $70.42 0.00%
CSCO $27.33 0.00%

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