Stung by accusations their happy research was the hot air that inflated the bull-market balloon, the Wall Street analyst community has reacted with its customary timing, slapping downgrades on everything that moves, just in time for a seven-week rally.

The rally cry has been valuation, as analysts flock to the religion of pundits who have argued since the late 1990s that stocks -- especially technology shares -- trade at unsustainable price-to-earnings ratios.

With uncanny frequency, the shares they've chosen to tar have gleefully shot up in ensuing sessions (or at least not shown any of the raggedness their converted critics predicted).

"The sell-side analysts are missing the boat," said John Waterman, managing director of investments at Rittenhouse Financial. "They were not quick enough on the upside and got valuations wrong. Now, they are overdoing it on the downside and reacting too quickly to what is happening."

Roll Call

Shares of paint maker

Valspar

(VAL) - Get Report

, Internet software providers

Mercury Interactive

(MERQ)

and

BEA Systems

(BEAS)

, biotech outfits

Celgene

(CELG) - Get Report

and

Biogen

(BGEN)

and plastics maker

Owens-Illinois

(OI) - Get Report

all are up since the companies received analyst downgrades recently.

Graphic-design software manufacturer

Adobe

(ADBE) - Get Report

and specialty retailer

Gymboree

(GYMB)

are slightly lower, but only after Tuesday's selloff and only after rising in the sessions after they were panned.

In each case, a high valuation has been the rationale for the call, or at least a big part of it.

According to Waterman, the fact that most of the recent analyst commentary on technology stocks has had little to do with fundamentals -- that is, earnings analysis -- is telling. "It is a sign that these analysts are gun shy," he said.

On Monday, UBS Warburg's Nikos Theodosopoulos cut

Cisco

(CSCO) - Get Report

to hold from buy, saying it had exceeded his 12-month price target of $14.50, based on calendar 2003 estimates, and that upside potential was limited.

"We are not making a call that business is getting worse, as our recent channel checks suggest that there has not been any newly developed negative trends in Cisco's bookings since the company reported earnings in early November," Theodosopoulos assured his clients in a research note.

The market more or less shrugged off Theodosopoulos' valuation call -- Cisco is down 44 cents since Monday, roughly in line with the

Nasdaq

dip.

Objective Correlative

On Nov. 15, Merrill Lynch's Christopher Shilakes lowered his ratings on software makers Mercury Interactive and BEA Systems to neutral from buy, saying the stocks had reached his price objectives.

"Mercury Interactive remains one of our favorite companies from a market position, product cycle and management quality perspective," Shilakes assured investors in a research report.

Shilakes also wrote that he believed the shares of BEA Systems will hold near current levels, "given the solid performance of the company and long-term potential of its WebLogic application server."

The stocks may well trade at rich valuations. But Mercury is up $2.24, or 7.5%, to $31.96 since Shilakes' note, while BEA Systems is higher $1.34, or 14.8%, at $10.38, even after mild dips Tuesday.

This kind of behavior is often an indication of a market bottom, when stocks have historically ignored valuation calls. "When people are overly optimistic or pessimistic, you are usually around a ceiling or a floor for the market," said Kent Engelke, capital markets strategist at Anderson & Strudwick.

Others point out that the market is traditionally a discounting mechanism, meaning it goes up before the fundamentals do. "The mood of the market has turned much more bullish, giving investors the impetus to ignore negative stock ratings," said Dick Dickson, a technical analyst at Lowry's Reports.

Dickson hesitates to conclude recent activity is necessarily indicative of a market bottom, however. "Tech led the way to the top. It would be unusual for it to be leading the way off the bottom," he said.

Nevertheless, the market's rally off its lows in October has coincided with an improvement in some broader fundamentals. Economic data -- including the Institute for Supply Management's manufacturing index, new home sales, consumer confidence and third-quarter GDP numbers -- have beaten expectations.

"More people are willing to make a bet that earnings will be higher a year or two from now than they are today," said Ted Bridges, vice president of Bridges Investment Counsel, which oversees $1.5 billion.

With the

Dow

up 19%, the

S&P 500

higher by 18% and the Nasdaq ahead 30% since their lows in early October, the timing of the research downgrades seems poor.

"The investing public has been burned badly by analysts," said John Bollinger, head of Bollinger Capital Management, a technical research firm. "I do not think they will forget that pretty easily."