This column was originally published on RealMoney on March 17 at 12:30 p.m. EST. It's being republished as a bonus for TheStreet.com readers.I can't be bullish on stocks right now, because valuations are not cheap according to my model. But I can't be bearish unless all of the equity averages turn technically negative, and currently, only the Philadelphia Stock Exchange Semiconductor Index (SOX) has a negative weekly chart profile. The SOX was in a leadership role off the April 2005 market lows, but is a drag now, providing a market warning.
Sector Valuations Are Not CheapOf the 11 market sectors, technology is the only one that's currently undervalued. But it's undervalued by only 4.1% now, vs. 10.5% at the end of 2005. More dramatically, the semiconductor industry is only 6.4% undervalued now, vs. 32.9% undervalued when the SOX bottomed at 376.64 on April 29, 2005. The SOX reached 559.60 on Jan. 27, up 48.6% from low to high. The SOX's January 2006 high was just below its January 2004 high of 560.68, as shown on the weekly chart below.
Semi Over EasyEach of the SOX component stocks profiled below rates a hold with ValuEngine. Three are overvalued components I've been saying to sell on strength. Five components are more than 20% undervalued, and for investors looking to start new positions in semiconductor stocks, these are the names to consider buying, but only on weakness to value levels.
|Slippery SOX |
It's less undervalued than at the start of the year
|Source: Athena Graphics, available on Telerate Plus, a Reuters product|