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Technology Stocks : INTERNET MANIA! Day Trading Net Stocks
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To: TWICK who wrote (142)11/28/1998 11:48:00 PM
From: Tai Jin   of 1054
 
I agree with what you say. In fact, this is an email I had sent to some friends earlier today. Basically, there is much opportunity to profit on very short term trades - both long and short. But I'm expecting the dust to settle within the next month or so...

The current Internet mania has been compared to the tulip mania of
the 17th century. The belief is that the bubble will burst at some
point. An unforeseen event will definitely cause the bubble to burst.
But right now, I see prices continuing to bid higher as retail investors
pursue their dream of retiring overnight by investing in these highly
speculative stocks.

While I don't see these stocks crashing to premania levels right away,
the recent gains in e-tail stocks has built in such high expectations
for these companies that there is no where for the stocks to go but
down (but not before going up some more while the momentum lasts).
There is no way that these companies will double or quadruple their
sales during this holiday season as has been priced into their stocks.
I think this failure to meet expectations will cause many of these
stocks to correct by 25-50% from their highs.

What's telling is that even the third- and fourth-tier stocks in this
sector have also been bid much higher. Basically, traders and investors
are looking for scraps at the bottom of the barrel since the bigger
names are priced out of their range. Well, there's a reason why these
stocks were at the bottom of the barrel, and their fundamentals haven't
changed. These stocks will be the first to fall.

There is certainly a lot of cash being pumped into these stocks. The
problem is that this cash is fickle. Most of the money is coming from
momentum traders and investors. This type of trading causes extreme
volatility in stocks as traders and investors move in and out of stocks
as they gain and lose favor. The prevalence of Internet chat rooms also
contributes greatly to the waves of buying and selling in individual
stocks. I would draw an analogy between these chat rooms and the packs
of roaming hyenas hunting for their next kill.

As an investor, you should be careful about buying these stocks at
current prices. I expect to see end-of-year selling as investors lock
in 100% or more profits this year. Let the dust settle before taking a
position based on good fundamentals. As a trader, this volatility is a
gold mine for trading on both the long and short sides (just don't fight
the momentum - you'll be trampled). I just wish that more of these
stocks were optionable. Actually, TheStreet.Com has filed to have its
Internet index traded - that could be an interesting trading vehicle.
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