Looks like traders were still on the fence through Thursday's close. Can't say I'm surprised. Not only did the market dole out an oversized 3.5% gain in just six days over the course of late last week and early this week, but there's a HUGE technical ceiling right where most of the major indices seem to be stalling this week. We have to respect that reality, and not become presumptuous here. We'll look at the details of the dilemma below, as we always do. The first thing I want to do today is talk about David Einhorn's recent call - and letter - suggesting we're in the midst of a tech bubble. Tech Bubble? Really? To be perfectly honest, I wasn't going to touch this subject today. Greenlight Capital's David Einhorn is free to express his opinion when and how he wants to, and we're free to listen or ignore it. For those reasons, I didn't see any real reason to stir the pot unless I was actually going to add some context or helpful data to the discussion... which I wasn't planning in doing. When I read today's edition of the SmallCap Network Elite Opportunity newsletter today, however, I got a little motivated because John Monroe and I are on the same page - we just don't see the tech sector being "bubbly". I'm even going to take the discussion up a notch and specifically explain why, with pictures and numbers. First things first. Einhorn's basic thesis was that we're trading in "an echo of the previous tech bubble, but with fewer large capitalization stocks and much less public enthusiasm." Ummm.... correct me if I'm wrong, but isn't a bubble (by unofficial definition) first and foremost too many overvalued large caps and too much public enthusiasm? You take those out of the equation, and you don't have a bubble. Be that as it may, just for kicks I dug up some of the necessary data we'd want to consider in deciding whether or not we're in a bubble - the progress of large cap technology stocks versus their earnings growth and earnings projections. From that data we can glean the P/E ratio, which to be fair isn't the only data point that matters, but it's one of the biggies. Here it is - a chart of the S&P 500 Technology Sector Index versus its earnings trend. I only have data going back to 2009, but that's still enough data to say that earnings have been rising, are expected to keep rising, and to know that the trailing P/E for large cap technology stocks is still a palatable 17.23. It's worth noting that the trailing P/E ratio for large cap tech stocks has been rising, as stock prices have outpaced earnings growth. We've seen worse though, and survived worse. If I recall correctly, back during the first tech bubble we were seeing average technology stock price/earnings levels in the 50's. Given the growth potential at hand for tech stocks, I think the trailing P/E of 17.2 is justifiable. I will say this to Einhorn's credit - he acknowledged "What is uncertain is how much further the bubble can expand, and what might pop it." At the current pace, the trailing P/E for the tech sector could reach 20 sometime in the foreseeable future, at which point valuations will be more than a little strained. It could be a couple of years before that happens though, and I'd hate to miss out on a good two years just because there might be a bubble in the future. Folks, there's always going to be some kind of bubble on the horizon. It's just as important, however, to not get out too early as it is to not get out too late. I think John Monroe over at the Elite Opportunity summed up David Einhorn's theory quite nicely in this snippet from his newsletter today: Quite honestly, I think this guy is a real piece of work. He's talking about tech valuations being out to lunch and comparing much of it to the peak of the Internet Bubble days, which for so many reasons I'm not going to get into today, seems nothing short of absurd. And, if I had to put some real money on the table and bet, my guess is he's already shorted the living daylights out of many of these so-called overly valued tech ideas and last night's letter is only an attempt to create negative exposure across tech in an effort to help his short positions. This is just how this guy seems to work. Maybe he should have waited until today, after AAPL and FB reported their numbers. Or, maybe after Amazon reports tonight? Regardless, although we do have a fundamental and technical argument for the markets to run into a headwind right now, the current market environment for tech is nothing like 1999 and 2000. Companies back then were trading at ridiculously high valuations and most of them weren't even making any money at the time. Sure, they were generating revenues but most were burning through more cash than anyone could ever imagine and they weren't generating any profits in the process. This is hardly the case in the tech space 15 years later. As a matter of fact, most mid and large cap tech companies are growing revenues, generating profits and utilizing cash on hand in successfully strategic ways. Sure, there are companies that are unproven and overvalued but that's always going to be the case in any market environment. However, we're hardly in what I would consider to be a tech bubble. Monroe is right, too. As we just saw above, the large caps in the tech sector are growing earnings, and aren't wildly overvalued as a group. The part of today's SCN EO newsletter I didn't add is how Monroe is actually trading some key technology stocks right now, and how he's actually using Einhorn's rant as a springboard of sorts. It's all about getting the timing right, and in a way, Einhorn's efforts accelerated the trends and/or reversals for many of Monroe's current and future stock picks. I can't tell you what those picks are, of course, but I can tell that it's not too late to use your free two-week trial to the Elite Opportunity service to see how he's adapting his individual stock picks to work with earnings news, the calendar, and now, David Einhorn's opinion. Monroe understands that it all matters, which is why he continues to knock 'em out of the park. Here's how you can see for yourself, or cut and paste this link: https://www.smallcapnetwork.com/?vmpd_ckstr[click_track]=Newsletter&vmpd_ckstr_redirect=/pages/SCNEO/v1/ There's No Denying it Now This may be the shortest daily market analysis I've posted in a while, simply because there's practically nothing to add to yesterday's chat. We knew the S&P 500 was dealing with a technical ceiling at 1884, and today's lack of progress verified it; the S&P 500 topped at 1884.06 on Thursday. We also knew the Dow Jones Industrial Average was contending with a zone of resistance between 16,500 and 16,576, and today's high was 16,541. What's it mean? It means everyone's wanting to be bullish, and is remaining in position to pounce on the breakout if it starts. However, it also means that nobody wants to be the first to take that first step - a leap of faith - to punch through these technical ceilings. Until we get some actual movement here, there's not enough reward worth the risk. As much as I'd love to see this movement unfurl soon, I don't see it happening on a Friday either. It's sure going to be interesting to discuss, however, so be sure to check back tomorrow. In the meantime, here's a little something to get your trading juices flowing. The coal stock breakout we've been expecting? We saw a small glimmer of a breakout yesterday, but the buyers really put the pedal to the metal on Thursday. The Dow Jones Coal Index jumped 2.6% today, clearing a big ceiling at 139.0. While I'd still wait for a dip to use as an entry point, this industry just officially became worth watching. And yes, Peabody Energy (BTU) had something to do with it. Although the coal miner fell short of earnings expectations due to still-tepid coal prices and its outlook wasn't exactly thrilling, the stock rallied anyway because Peabody implied it would consider cutting its more expensive operations. It's not an encouraging sign, so we're still going to exercise some caution here. The rub is, while Peabody might not have mentioned it, coal prices are still in the midst of a solid uptrend. Prices may not be solid enough to push all these names back to profitability, but we're still back to prices that can sustain at least the better-run mines. We'll save that discussion for another day though.