By Clyde Noel

Stock Report

Early Monday morning, the markets turned around and went into a mild negative bias. The failure of the Dow to clear 11,000 has caused the Dow Jones industrial index to sell off and move into negative territory again.

Investors were on the fence Monday, as last week’s 9 percent advance and Cisco Systems’ earnings report, due Tuesday, gave them cause to pause.

There is still plenty of money on the sidelines, and if we get past the Cisco report this week, then the market should do well for the next quarter.

Economists predict Cisco Systems, the provider of Internet plumbing, to post a profit of 2 cents in its fiscal third quarter, against 14 cents in the same period a year ago. If Cisco Systems indicates corporate spending has bottomed, Wall Street is likely to move money into selected technical stocks.

The weak jobs report last week seems to have ended weeks of speculation that an expected cut at the Federal Reserve’s May 15 meeting could be 50 basis points, putting the overnight bank lending rate at 4.0 percent.

While economists are convinced the Fed has more easing to do, many said the April jobs cuts were not all that surprising, given the pace of layoff announcements over the past several months, especially among Silicon Valley tech manufacturers.

Last week, Nasdaq gained 45.48 points to finish at 2,191, a gain of 5.6 percent for the week. The Town Crier index gained 1.27 percent for the week and is now down only 3.28 percent for the year.

Two longtime members of the Town Crier index, Harmonic and Legato, are beginning to show some life and both were up last week. Way off last year’s high, Legato is now up 117 percent since Jan. 1.

Is it time to break out the champagne? It depends, because the market is still overvalued in many technical stocks.

If the earnings are poor and the price is high, a stock could be overvalued like many of the tech stocks were last year. Standard & Poor 500 was trading at 22.9 times earnings last week while historic market valuation is around 15.

Another comparison is the relationship between p/e and a projected five-year growth. That might help investors put into perspective the influences in the market such as interest rates and investor psychology.

The p/e ratio is important to evaluate because a high relative p/e is a warning that values are getting overheated.

Getting back to Cisco, the p/e is 45, and its projected p/e is 61. There are still many companies in Silicon Valley which have no earnings and their price is beginning to rise. Examples are Legato and Harmonic - they have no stated p/e.

Noel, a seasoned investor, covers the stock market for the Town Crier.