You probably can't find a more painfully obvious contrary indicator than the euphoria we are seeing over recent initial public offerings. Anyone active back in 1999 and 2000 will recall how Internet-related IPOs with no actual earnings were in an absolute frenzy. Lately we've seen things like Millennial Media (proposed ticker "MM"), Yelp (YELP) and LinkedIn (LNKD), with very aggressive valuations, trading as if investors will never be able to buy them any lower.
I'm generally not a big fan of contrary thinking since the great herd of dumb-money bulls is right the vast the majority of the time. It is only at extremes that the frenzy becomes worrisome, and the focus on IPOs has that hallmark.
It isn't just the IPOs that are the problem. The underlying action is very choppy, breadth is poor and there is no leadership other than the IPOs. I've keeping things extremely tight and I'm more focused on defense than buys.
My stock of the week, Velti (VELT), is a play on MM. It popped nicely once MM began trading and I've cut that back a bit. VELT has a very attractive valuation, especially when compared to MM, and I'm going to keep it on my radar. The mobile advertising theme is one that will do extremely well the remainder of the year, and VELT is the best way I see to play it.
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