This looks like the end of the bear market...

darth trader · Jun 24, 2001

more evidence from the sunday times?

Tech shares are doomed, warn experts

Robert Winnett

THE technology sector is dead and only a handful of companies will survive.

The drastic warning was issued last week by some of the world's biggest investment banks. Private investors are therefore urged to act quickly to mitigate any further losses.

People who are prepared to take a risk and buy shares now in the handful of firms tipped to succeed could make big profits.

Tens of thousands of small investors hold technology shares and technology funds are among the most popular Isas.

Technology shares have fallen sharply since March 2000 - some are down more than 90%. The Techmark index has fallen 48.1% from its peak and America's Nasdaq market is down 59.2%.

Although technology shares have climbed slightly over the past month, further falls are imminent and some investors could be left with nothing. Therefore, now may be a good time to sell to take advantage of the recent rises.

Khuram Chaudhry, a stock-market strategist at Merrill Lynch, said: "I think it is fair to say that there will only be a handful of technology firms in a few years. You will see a big clean-up of the industry as companies go bust."

Steve Russell, strategist at HSBC investment bank, said: "A lot of these businesses are real basket cases. Many will not survive beyond next year. I believe that the sector will take a decade to recover."

The three companies tipped by Merrill Lynch to survive the storm and ultimately become the big winners are Vodafone, the mobile phone firm; Logica, the software company; and ARM Holdings which designs microchips. HSBC also tips Vodafone and Logica together with Spirent, a telecoms equipment maker, and Sage which makes accounting software.

Shares in these firms could soar when the economy recovers. They should then continue rising and prove good long-term investments.

According to a study carried out by Josef Lakonishok, an economist at the University of Illinois, the growth in profits at surviving technology firms - which usually determines the rise in the share price - will average about 6% a year in future.

This is about the same as for any other type of firm and is far lower than the big rises seen over the past few years.

However, the outlook for most technology firms is bleak. They are predicted to go bankrupt over the next few years or be bought at rock-bottom prices by the handful of solid, successful players left in the sector. Many experts previously predicted that internet firms - the so-called dotcoms - selling online products and services directly to consumers would bear the brunt of the crash in technology shares. These businesses were widely expected to go bust, while other companies manufacturing or designing computer hardware and software would thrive in the long term.

However, the scope of the technology meltdown now appears to be much wider. Firms such as Baltimore Technologies and Psion, which were both briefly in the FTSE 100 index, together with Redstone Telecom and Autonomy could now face serious trouble.

Jeremy Batstone, head of research at NatWest Stockbrokers, said: "Even among the well-known technology firms all is not well. There are simply too many companies and many will have to go."

Chaudhry said: "Baltimore shares may look cheap but, it is only worth buying something that is going to be around in five years."

The country's biggest fund managers are also taking ultra-cautious decisions when investing in technology-related firms. John Ross, head of strategy at Fidelity, said: "We are now being highly selective and will invest only in profitable firms with proven track records. It's difficult to see technology shares recovering to the old highs for a very long time."

The news marks a blow for the thousands of investors who piled into technology funds at the beginning of last year. Although the fund managers should be able to move money into the better technology companies, they are still likely to take years to recover.

The technology meltdown provides a stark reminder of the danger of investing in fashionable stocks on the basis of past performance. Adverts for investment funds typically boast of several years of stellar returns. But in reality such growth is rarely repeated.

madasafish · Jun 25, 2001

Can't agree with any of you.
SP500/NAS and DJ formed double or treble tops. FTSE100 at critical support.
Last throw of bulls FOMC cut 0.5%..
Dow may rally to 10900, NAS will not top 2200

Then reality intervenes.. NAS to 1750, Dow 9500 and FTSE100 brelow 5300.

Mike

darth trader · Jun 25, 2001

Hi madasafish,

the great think about the markets is that there are many indices, sectors and stocks.
There is no single point in time when everything turns...

from the point of view of indices I agree things still look difficiult for the ftse to break 6000 soon and the nasdaq may well test the april lows ( or go lower) as the telecoms and techs get more punishment.

Elsewhere there are signs of life that show the interest cuts are working. People have more money in their pocket with lower mortgage payments and consumer confidence is still buoyant. This is where I see a bullish case.

madasafish · Jun 25, 2001

Just wait for US consumer confidence to dive...
Mike

darth trader · Jun 25, 2001

consumer confidence in mind.

Last time, a rate cut wasn't enough (remember the 24 hr delay?) to cause a rally and he pumped 11.7 billion dollars into the stock markets by giving the banks an unexpected transaction.

Undoubdtedly the economy is treading a fine line and we all have to take a view. I think it's perfectly possible for us to take opposing view points on the market and yet both be winners by using trading skills.

In difficult markets there is a case for going long and short to hedge against the general market direction though for now I'm having fun by going long again.

madasafish · Jun 25, 2001

Dow sdown 128 at 10476 as I write.
9500 here we come...
Mike

titus-uk · Jun 25, 2001

Depression....

Easy, isn't it!

To feel pretty sh#te about the state of the markets.

To go through a repeat of the lows again....

What is important to remember is that money always finds somewhere to go. Through the last 6 months, the headlines have been techs, how many people have lost on TMT's etc. Yet in the meantime, the smart money has been in construction, retail and even mining. If you played things right, you could easilt be 50% up - even going long in a bear market. There is cycling of sectors, and its all about finding where to go next. Me - I'm 66% in cash, looking where to go next..as well as trying to work out how AIQ works!!

Mark

madasafish · Jun 25, 2001

I'm 90% cash and short amd going shorter

Mike

darth trader · Jun 26, 2001

madasafish,

being 90% cash you arenot heavily exposed to the markets. I'm 100% long and have rigid stop losses in place.

We are certainly at a maor turning point - just look at the indices for ft100, techmark, arm, 3i etc.

I hope (for the general good) that today marks a higher low and that we turn around from here.

My faith lies with greenspan. I beleivethat he will do whatever it takes to turn the markets round.

We must both follow the market because it will lead the way...

RobDeNiro · Jun 27, 2001

End of bear market ?

Well I may as well add my 10penneth,
As a total novice to the game,this website is an invaluable tool,as is the chatroom.

I watch the likes of riz and others backing up their words of wisdom with trades and actions most days.

The people who are in the position to trade full time have my utmost respect and admiration,for the simple reason that they "put their money where there mouth is".And the best of British to all.

As for the end of the bear market,I believe this is still sometime away!

I write on the day that MrG is scheduled to announce his latest prescription for the US economy.

It seems to me that the bulls have complete and utter belief in the brilliance of "the man" and they are full of confidence that a few points off the interest rates can halt the downturn in the US economy.

The fact remains that a large percentage of "US consumers" actually borrowed money to buy shares,I am amazed by this fact every time I see it written down,their portfolios have tanked but their loan repayments just carry on regardless!
This state of affairs will take more than a few interest rate cuts to rectify,IMHO

Just the view of a beginner (and 1 more post in the archives)

RdN

madasafish · Jun 27, 2001

The reasons for my pessimism :
1. US rate cuts are pushing on string. Old economy faltering feeding through to lower orders for nes
2. Still too much world tech capacity shot term
3. UK/Europe demand faltering.. see Cap Gemini statement about falling Europena orderes in past few weeks for telecomms and financial staff.
4. Go to UK Invest CFD notes by Sadiq Mahir (sp?) and see what the hedge funds are shorting.. BT to 350 and Vod to 130 and Colt to.? 350? They are not always right but a good source of market thinking.
5. Long term downtrends in tech stocks are still intact and some (many) are still rated at PEs of 40+ - that's assuming 20% + profit growth every year.. many are giving warnings profits are falling..

6. Look at 6 month charts of Dow, SP500, NAS, FTSE100 and Techmark. If you think they have bottomed at these levels as a chartist I say it's possible (everything is) but the chart patterns suggest major falls ahead.

7. Economic uncertainty reigns.. and that means volatility, nervousness and scope for further panics..

8. There is no clear volume blow off but a gradual creeping down in the UK.. and it's summer. That suggests no clear bottom in sight.

9. Institutional buying. They hold approx 70% of all UK stocks.. Are they buying? Volumes say no.

My conclusion.. possible 10-20% falls to come.
I'm only short 1 stock at present Galen. Waiting for FOMC decision.. expect a rally for a week if 0.5% and then a selloff. If 0.25%, selloff and big falls at once..

But I'm only a chartist..

Mike

titus-uk · Jun 27, 2001

See post above...

Mike, I agree with all that you say.

This is on the back of only a 0.25% cut. 1.2% fall, just moving back into the green.

Techs are sick - tell us what we don't know.

However, there are more sectors than TMT's - some of which are reaching new highs. It is important to find strategies that work in all sectors and markets. It is important to avoid the bulletin board mentality of focusing on techs, until the downtrends are broke. There are a lot more companies out ther, attracting the smart money. We just have to spot them...

Happy hunting,

Mark

darth trader · Jun 27, 2001

Well said Mark.

I'm now looking for a higher low to form on the main indices. There will be more punishment to come for tech stocks for the short/medium term and while they are good for range trading I doubt that we will see them rocket yet.

Meanwhile a higher low would help the ftse100 to get back above 6000 and trade in a range just above that 'til we're ready for the next move.

The fed isn't going to give in without a real fight - no matter what the charts say!

Search

This looks like the end of the bear market...

Riz

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