Greg,
Volume today was 3 standard deviations greater than average for the last month but--and it's a big but--price movement barely kissed one standard deviation below the 20 day moving average and closed at about .7 of one standard deviation, which is significant but not very. To get a downside climax, most TA types want both very significant volume and very significant price movement.
On fundamentals, the street suggests AOL's growth rate is about 50%. (I think it may be a bit lower but some of that is probably seasonal.) P/E usually has something to do with growth rate. Giving AOL a bonus as a name-brand franchise, a 60 p/e would let AOL get cut in half again and still not be undervalued by traditional valuation methods. In other words, if Wall Street gets down on AOL, it could easily sell for $50/shr.
Why would Wall Street get down on AOL? Opinion follows the market. The stock goes down, analysts find justification for the price movement--broadband, slowing subscriber growth, Instant Messanger wars, Steve Case's pineapple farm (i.e., selling)--whatever. The TA types will point to 200 DMA and breaking the neckline of a head-and-shoulders pattern. And, of course, higher interest rates will pound the crap out of high P/E stocks for a variety of reasons.
My point is obviously that calling bottoms is an iffy business at best. When I try it, I frequently get creamed. The intermediate term and short term trends are both undeniably down. I closed out some AOL calls today and propose to wait until the market works out its problems, whatever price that happens to be.
Best,
--Steve |
