Stocks trade at the margin and frequently tank on thin volume.
Yes and no. Depends on what you mean by "tank." Stocks do go up and down considerable on thin volume, but experienced investors discount down trends on low volume, and use this as an indication to buy on dips. You don't see many stocks going down, say 50%, on thin volume, if that is what you mean by tanking.
Indeed, yesterday on CNBC I heard their reporter on the NYSE floor comment that much of the tech stock selling that drove prices down was averaging under 1000 shares per trade, individuals not institutions.
And if you notice, the prices are back up again right now. They might go down again, or up, but low volume does not a market trend make.
For Internet stocks in general to go down and AOL in particular to go down, you say, Furthermore, investors must lose faith in the future of the internet. It seems to me it happens the other way around. A stock goes up, everybody gets positive on its prospects. It goes down and ex post facto people find reasons to justify the downdraft. And that's especially true with stock as difficult to value as Internet stocks.
I think you are justifying your own position. AOL has been sideways or down for a couple of weeks, and you are finding AOL reasons to justify the downdraft, instead of looking at the market in general. For me, and I think for most longs, the future of an industry is first justified, then a particular company within that industry, and finally the stock in that company. It is true, however, that there are many internet investors who are not truly long, they are momentum investors, traders, etc. And I agree that this type of individual will bail when the going gets tough, and then find reasons (false ones usually) why the stock went down.
So within that context, and since I am long on AOL, so far I see no changes in fundamentals to cause the price movement over the last couple of weeks. I still believe in the future of the internet, and in AOL as a sector leader. There are many reasons why the stock has been behaving the way it has, and they have nothing to do with AOL. They have to do with FUD (Fear, Uncertainty, and Doubt) caused by Brazil, by Greenspan, by Asia, by constant talk of bubbles (justifiably for many internuts), by profit taking, and so forth. To repeat, when AOL goes down for an extended period and the market is up, I will have to go back and re-evaluate the situation with AOL, and possibly with the internet industry. There are some concerns with AOL, that involve consumation of the Netscape merger, broadband competition, etc, but so far I really have not seen any reflection of these real issues in the stock price. For example, AOL announced a key deal with Bell Atlantic for DSL service starting this summer, and this was not reflected at all in the stock price. ATHM acquired XCIT to bolster competition against AOL, but again there was no reaction in the AOL price. I think most investors are just sitting on the sidelines waiting for the current FUD cycle to subside before re-evaluating their positions, and when they do they will see that AOL presents a great buy opportunity.
Just my take on it. |
