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Internet Bubble 2.0... and support holds (for now)

|Includes: AMZN, SPDR S&P 500 Trust ETF (SPY)

 Internet Bubble 2.0 is a buzz phrase that has made some rounds this year.  And wow, is Linked In (LNKD) is playing the part of Poster Boy to a tee, up nearly 100% from its IPO price.  But LNKD is just one of many.  Amazon (NASDAQ:AMZN), a company that I think does a brilliant job (Amazon Prime is a genius approach to having customers expand orders and order more frequently), is carrying a trailing P/E of 85.  That would be so bad except that revenues grew 35% last year and earnings were basically flat!!  And this a company that is fairly mature.  Like a lot of risk assets it has formed a rising wedge (and a wedge within that wedge) as seen in the 3 year chart below:

The old rule of thumb is that P/E = earnings growth (or at least revenue growth).  That’s one way to excuse high P/E’s, but for many of these internet companies the growth doesn’t come close to equaling the valuations.

The general market held at support for now.  The S&P bounced off its 50 day EMA but is now test two different short-term trendlines.

Should it break through resistance, the 78% retracement of its 2008 drop will be tested once again.  As highlighted in the chart below, Fibonacci retracement numbers have been regular support/resistance through this rally, as highlighted by the highlights in the chart below.  Purely random?  That’s a lot of random dots.

It seems only reasonable to remain cautious until these long term rising wedges that appear in so many risk assets are resolved.