The third week of July is one of my favorite times of the year. That’s when a lot of big companies release the second round of quarterly earnings reports and the year starts to take on a clear personality.

If last week is any guide then 2014 can certainly be described as “cautiously optimistic”, if not “increasingly schizophrenic”. Netflix (NSDQ: NFLX) got the week off to a good start when it reported a better than expected bump in second quarter earnings, more than doubling from $0.49 to $1.15. However, after peaking near $452 on Tuesday the stock has been in a downdraft since, closing on Friday below $422 for a drop of almost 7% in four days. That doesn’t surprise us as just two weeks ago in this space we opined, “Netflix is now the most overvalued tech stock according to our system”, meaning it was already priced for perfection and had nowhere to go but down. Even still, Netflix is still trading at 160 times trailing 12 months earnings, and more than 100 times projected (future) 12 month earnings.

Facebook (NSDQ: FB) also announced strong earnings last Wednesday, more than doubling its quarterly EPS from $0.13 in 2013 to $0.30 this year. In the case of Facebook its stock was rewarded with a jump from $71 to $76 the very next day for a quick gain of about 7%. Facebook looks like a bargain compared to Netflix, trading at “only” 97 times trailing 12 month earnings and 46 times projected earnings. That now puts Facebook above its previous all-time high, prompting Forbes to describe the stock in an article today as a “classic example of bubble”.

By contrast, Microsoft (NSDQ: MSFT) drew mostly yawns from its earnings report last Tuesday, with its stock sliding down in value a dollar by the end of the week. Not a big deal since it had already run up quite a bit in the weeks prior, and at $44 is still almost 20% higher than where it started the year. In contrast to Netflix and Facebook, Microsoft is now trading at 17 times trailing 12 months earnings, and only 16 times forward earnings. In a similar vein, Apple (NSDQ: AAPL) now trades at 17 times trailing 12 months earnings, and 16 times forward earnings even after jumping up almost 5% last week after another strong earnings report.

But the big loser last week was one of our favorite punching bags, as Amazon.com (NSDQ: AMZN) dropped almost 10% on Friday after another ugly earnings report that included the startling admission that the company lost $126 million during the second quarter (compared to losing only $7 million during the same quarter in 2013). So how much lower can Amazon go? Let’s put it this way; even after last week’s big price drop the stock is still trading at more than 500 times trailing 12 month earnings, and an astounding 3,000 times future earnings! Anyone who owns the stock now either has an extremely long term view of the market, or believes that its Amazon Web Services division will grow exponentially over the next couple of years. Otherwise this stock is still grossly overvalued.

So now that the “Big 5” of tech stocks have reported earnings, what do we make of this market? While it is still very much a “momentum” market, only those stocks that can show an improving earnings trend are retaining investor loyalty. We are still a far ways from it becoming a “value” market, but we are beginning to see movement in that direction.

NASDAQ Composite Index:                                                                        

Friday, July 25= 4,449.56                                                         

Year to Date = + 7.4%                                          

Trailing 7 Days = + 0.4%                                      

Trailing 4 Weeks = – 0.9%

Portfolio Update

No buys or sells in our portfolios this week. At the moment only two stocks in our Investments Portfolio are trading below their respective buy limits, with Qualcomm (NSDQ: QCOM) now trading almost $10 below our limit price of $85 so it is our strongest buy recommendation at the moment with the second highest Smart Tech Rating score (STR) in our coverage universe.

There is also nothing to buy at the moment in our Equity Trades Portfolio, but we expect that to change in the coming weeks as we anticipate adding new positions after all of the quarterly earnings reports have been digested by the market.

However, four of the five companies in our Next Wave Portfolio are trading below their buy limits so there is opportunity to open new positions there.  And if you are the type of investor that likes to stake out a position just prior to an earnings release on the hope of getting a big “pop” then be aware that Ebix (NSDQ: EBIX) is scheduled to report during the week of August 4^th, with Teradata (NYSE: TDC) showing a release date of August 7^th.

In addition to the companies discussed above, a couple of our Investments Portfolio stocks will be releasing quarterly results in the days and weeks to come, as follows:

Western Digital (NSDQ: WDC) – July 30^th

Cisco (NSDQ: CSCO) – August 13^th