#1....... I respectfully submit my entry into your generous contest.
Today, Jan. 29th, from each of the stock's open, marks the beginning of the 40% correction of internet stocks.
The reasons are quite simple. First and foremost, the general markets have begun a 10 to 25% correction from this a.m.'s peak. This was direly needed to give the internets follow through on the selling that they have experienced in the past.
Secondly, Greenspan has used reversed psychology on the internet stocks by speaking positively about them yesterday. If he is bullish on this technology now, then the wall of worry concerning the possibility of him trying to prick the internet bubble has passed, and the stocks will move lower from here. In reality, he very much wants the internet stocks to drop to realistic valuations, but he knew that if he spoke negatively about them yesterday at the Senate hearing, it would only build the wall of worry higher for them to climb.
Thirdl and most important, you finally have the earnings reports out for the internet majors. The news is out now that their businesses are growing faster than most could have thought possible. But the meteoric climbs the stocks had the month prior to this recent round of earnings reports already discounted that possibility and then some. So what happens is unsavvy money gets stratified here at these high levels buying the good news, while the smart money is not only closing longs, but going very short these stocks. And smart money is big money, and can drive these stocks into the ground.
Next, market makers have been willingly pushed to huge short positions by the buying frenzy of the public. Most have a short basis 30 to 50% under current market prices, so they will not be there to support the drop when it occurs and panic sets in amongst the naive investor as these stocks tumble 10, 20, and some even 30% in a day.
Finally, the Yahoo merger with Geocities is a classic sign of an intermediate peak in the sector. Many will recall in April '98 when Citigroup and Travelers merged on April 6th. That day marked a very important multi-month peak in the market, as I believe the Yahoo-Geo deal will do for this sector now.
In conclusion, all the classic signs of a short term top are there, and I wouldn't consider these stocks a buy again until the Dow Industrials trade under 8000. Once the speculation is wrung out of these stocks, they will be the best performers in the next leg of the bull market, which I expect to be well under way by March of '99.
Regards,
David
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