Rumors that Fed will tighten margin restrictions on a number of Internet stocks, have been reported and could and will slow speculative fervor.
General Commentary
Has the tide turned? After racing higher for 7 straight weeks, techs were hit hard in yesterday's trading with much of the selling concentrated in the frenzied Internet group. While some will argue Monday's retreat represents nothing more than a minor speed bump on the road to higher prices, Briefing contends that Monday marked (at least) a short-term top. Here's why:
Sentiment is overly bullish. Last Investor Intelligence reading (will be updated today) showed 57.9% of advisors bullish and 29.8% bearish. When this indicator reaches such extreme levels of optimism, a correction is usually just around the corner.
Nasdaq volume much greater than NYSE volume over past several sessions... A sign that investors are willing to assume greater risks.
Recent mania in Internet stocks best indication of excess risk tolerance.
Advent of earnings warnings season. Oncoming warnings likely to facilitate change in sentiment.
Investors in high-flying tech stocks are going to want to secure profits... Knowing how far and how fast stocks such as Amazon, Onsale, e-Bay and Yahoo! climbed, investors that didn't get out yesterday aren't going to want to watch their profits disappear... As Rumors that Fed will tighten margin restrictions on a number of Internet stocks, reported on this page several days ago, will slow speculative fervor.such, we expect sell side to dominate in the days ahead... Big losses in net stocks to weigh on psychology.
Many leadership stocks now trading well above their long-term moving averages... Abnormally wide divergences are unsustainable... Further evidence that the path of least resistance over the short-term will be to the downside.
Finally, economic data due out this week will show continued signs of slowing - thereby increasing concern over corporate profit growth.
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