GO SHORT OPINION ARCHIVES: 3

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BLDP: (Ballard Power) This Canadian fuel cell developer's stock jumped from 29 in August to 133 in March after being highly touted by a certain well followed newsletter writer. We see this stock following the same pattern as many of this newsletter writer's other picks--a sharp runup followed by an equally sharp decline as fundamentals take over from promise. Although this company does have very promising technology and strategic corporate alliances, we see problems developing for the stock. It has many patents on fuel cell technology, but so do its larger competitors. We feel that the financial muscle of its larger competitors will make it hard for this company to dominate the emerging fuel cell field. We also believe that the mass introduction of fuel cells won't happen until at least 2010.The Daimler-Chrysler merger will also have a negative effect on this company. This stock has runup too fast and is presently discounting earnings expectations for the next 5+ years. Technically the stock has begun to break down. The stock has broken down through the 38% fibonacci resistance level. MACD, Stochastics, RSI, and on balance volume have all turned down from overbought levels. The stock has fallen below its 50 day moving average and entered a downturn. We look for it to go lower.  

DIS:   (Walt Disney)  We believe that Mickey Mouse will have a great fall. Walt Disney's stock valuation is based  on brand recognition rather than fundamentals.  We see severe problems ahead. Weak ratings at ABC and a high priced NFL contract will cut into profits. The current valuation ( a PE of 35 and 30 times next year's earnings) is not justified by the deteriorating fundamentals. After hitting a peak of 128, the stock has recently corrected 12%.  We look for it to fall below 90 this summer. The stock has completed a failed double top. Money flow is negative and the stock has fallen below its 55 day moving average. Deteriorating technicals and fundamentals have caused the Magic Kingdom to jump onto the Go Short list. 

SPAIN: We feel that the Spanish Market is extremely overextended. The Madrid Stock Exchange Index has jumped 65% since late October in the euphoria surrounding EMU. Lower interest rates, increased investor participation, a strong economy and high hopes for Spain's entry into EMU all contributed to the market's meteoric rise. The market is overvalued at a PE of 28.1 and a yield of just 1.7%.With the easing of EMU related over zealousness,  we expect a sharp correction to return the market to more normal valuation levels. The following stocks are the best way to play a market pullback:  

SPANISH BANKING SECTOR: The greatest beneficiary of EMU euphoria has been the Spanish banking sector.  The Madrid banking index has almost doubled since November as investors piled in on lower interest rates and hopes for consolidation in the industry.The sector is now extremely overvalued. We believe that positive sentiment towards the group is at an extreme and that a top is in place. The group peaked in early April and recently completed a double top. Distribution is taking place as the smart money sells, and money flow is decidedly negative. We would short the big 3 banks:  STD: (Banco Santander) STD: (Banco Santander) (Banco Santander) STD: (Banco Santander) has risen from an October low of 23.5 to 53.   This bank is trading at a PE of 27.6 and at 21.5 times 1999 estimates with a PEG of1.8.   has risen from an October low of 23.5 to 53.   This bank is trading at a PE of 27.6 and at 21.5 times 1999 estimates with a PEG of1.8.   BBV: (Banco Bilboa Vizcaya)BBV: (Banco Bilboa Vizcaya)BBV: (Banco Bilboa Vizcaya) The most overvalued of the big 3 Spanish banks, BBV has shot up from an October low of 23 to 52.5. BBV is trading at an unsustainable PE of 31.4. The PE on next year's estimates is 25.3, with a PEG of 2.1. Short BBV first. (5/27/98) (Banco Bilboa Vizcaya) The most overvalued of the big 3 Spanish banks, BBV has shot up from an October low of 23 to 52.5. BBV is trading at an unsustainable PE of 31.4. The PE on next year's estimates is 25.3, with a PEG of 2.1. Short BBV first. (5/27/98)

While the recent merger of Banco Santander and Banco Central Hispano improves the bank's competitive position in the Spanish and Latin American banking markets, the valuations accorded this stock continue to be a concern.  The stock's current P/E ratio is twice its long term growth rate of 12.6% per annum.  The bank still has an uphill battle to fight against larger European banks. (4/24/99)

TEF: (Telefonica de Espana) This international phone company with strong Latin American operations has doubled off its October lows. It is up 40% since mid February. Restructuring, moves to enhance shareholder value, and favorable sentiment towards the telco industry have been the prime drivers of its surging stock price. TEF is trading at 28.2X '98 estimates and at 24.1 times next year's. The stock is extremely overbought, trading 36% above its 40 week moving average. We believe that all of the good news (and then some) is already factored into the stock price. Look for a pullback to the 40 week moving average.  

VOD: (Vodafone plc) U.K. based international cell phone company VOD has been on a tear this year as merger speculation has seen the stock jump from its January lows of 69 to a recent 125. A better than expected yearly earnings report saw further gains for the shares.  We believe all of the good news has been priced into the shares. VOD is overvalued, trading at a PE of 41.6 and 30.8 times next year's estimates. The shares are trading at a PEG ratio of 1.8, and at a price\sales ratio of 12.5. We believe that any bid for the company would not offer a significant premium to today's price. We look for increased competition, and lower profit margins in the cell phone provider field as the hunt for new users heats up. We believe that new customers will  increasingly come from the lower usage, lower margin consumer segment as the business user market becomes saturated. We look for cell phone rate levels to decline towards line based telephone rates over the coming years. Technically, VOD is extremely overbought.  The weekly ADX has turned down from 65, and MACD, stochastics, and RSI are all showing divergences. We look for these shares to decline to their 200 day moving average at 81. Hang up the phone on this one.

U.S. Electrical Utilities: The slow growing electricity industry has reached historically overbought valuation extremes. We have turned negative on electrical utilities for two reasons. First, we view the current analyst bullishness on deregulation as misguided. For every electric co. that gains from deregulation we expect there to be another that loses business. Competition will lead to a lowering of rates, and profit margins.  The only real winners we see from deregulation are Wall Street investment bankers.  Our second reason for pessimism on the group stems from our belief that long term interest rates have bottomed.  The recent plunge in interest rates was mainly due to investor's  panic over the situations in Asia and Russia. As the situation calms in Asia we expect this flight to quality that led to record low rates to reverse.  We expect Asia's economies to begin a recovery later this year.  This will take away the one factor that has been keeping a lid on inflationary pressures in the U.S. The interest rate sensitive utilities will fall as long term  bond yields rise. The group's recent runup to new highs was entirely due to foreign investors parking their money in  U.S.treasuries for safety. We believe the worst has passed in Asia and the flight to quality , and subsequent runup in the utility averages, is over.  

ED (Consolidated Edison): New York electric company Con Ed leads our list of electric co shorts. The company has recently purchased Orange and Rockland utilities. We see limited earnings benefits from this deal. ED's current price discounts any improvement in earnings far into the future. Con Ed , with a PE ratio of 15.9, is trading at historically high valuation levels. We expect a rise in long term yields to hit the share price hard.  Technically ED's shares are looking decidedly negative.  ED's chart is showing a failed double top. The recent runup was accompanied by a negative divergence in OBV.  Stochastics and %R are giving  sell confirmations.  The negative volume index peaked in March and has been falling during the recent price rally--a bearish signal.  We expect Con Ed's PE ratio to contract to  11 times earnings, for a target of 33 over the next year. It's time to turn off the lights on this stock.

The technical outlook for the shares has also been weakening since their September 18th peak of 16 3/8. The September rally stopped at the 50% retracement of the 1993-1996 decline.  RSI and MACD both exhibited strong negative divergences during last month's peak.  Weekly Money Flow and OBV are in downtrends. Weekly ADX has fallen below 40, giving a sell confirmation. The underlying technicals for the Electric Utilities as a whole have  deteriorated over the past month. We feel that NMK shares are particularly vulnerable during a sell off in the utility sector. Our 6 to 9 month price target for the shares is $10 to $11 a share.

Several technical indicators showed strong negative divergences with price action during the early October peak in the Utilities.  This is a normal occurrence during panic driven market events. Prices are driven to abnormal heights, while the underlying indicators show divergences.   Distribution has been taking place over the past few weeks, with both Money Flow and OBV turning down. We are sellers of FPL Group shares at these levels, with a 1 year target of $50 a share.