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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 QCOM, +1.35%, Intel INTC, +0.51% 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 PLUG, +1.64%, Nio NIO, -0.83%, Enphase Energy ENPH, +0.53% and, of course, Tesla TSLA, +0.60%.

“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 CSCO, -0.43%, 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 DJIA, +0.74%, tech-heavy Nasdaq Composite COMP, +0.08% and S&P 500 SPX, +0.53% all moving nicely higher ahead of the Christmas holiday.

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