Tuesday, April 10, 2012

Markets Correcting, but Probably not Much

Last night's sell-off comes with an asterisk, as some of the major markets Australia and Europe weren't open, and US trading was occurring off the back of less than favourable employment data, which is a reverse against the upticks in improvements in the employment figures in the US for the past few months.

One thing that does concern me is the current Tech 2.0 rally - we saw facebook buy out instagram over the weekend for 1bn - instagram being 555 days old, whilst 116 year old New York Times Co. trades with market cap. of 949m - 7 years ago Flickr was bought by Yahoo for 34m.  Are we getting close to the social networking peak here?
Whilst I see a company like Linkdin will slowly takeover a market that has historically been in high premium mode - recruitment - a company like FB that will continue to monetize through advertising will face a lot more competition and changes in demand preferences in how people want to interact on the internet.

With AOL selling their patents to Microsoft for 1bn and seeing a 44+% jump in their shareprice - do we see a potential for Yahoo to go down this same path with their own patents?  Yahoo also cut a large % of their workforce in the past few weeks.

For the ASX stocks - we are seeing BHP trading near it's 6 month low 34.00-34.10 looks like a very good low risk entry point to trade either to the high of the short term range of 37-38, risking 30c to the downside.

Whilst we saw the Australian dollar sell-off in the past week, seeing a low of about 1.025 - we saw some relative strength last night, with markets seeing a bid here - we may see a quick buying action back to 1.05 and see some range bound trading this week as all risk markets try to find direction again to the upside.

I believe we are going to see higher prices and this correction is at most 5% to the downside is because we saw a large quarter from a low base, so there is still plenty of upside for a lot of large cap stocks who are still normalising in their earnings - we are seeing less euro risk being priced in, and continued liquidity being pushed into equities.  I am still clearly in remembrance of the 2008 recovery, where every little selloff was  shortlived, and every sell at resistence levels along the SP500 was meant with positive reinforcing price action as shorts quickly cover their bets on a regaining of significant resistence levels by the buyers.