Monday, 22 October 2012

This Thursday may be the day where US tech sector plunges or turnaround

Dear Friends,

This week is a big week for technological stocks in US. It is either break or die for Nasdaq composite. On Tuesday, Facebook will issue its second earnings report while on Thursday, the 2 mammoths of tech sector, Apple and Amazon will be releasing its earnings results.

I went to malaysia for a seminar held by Affin Bank recently. I was asked this question. "Can we buy Facebook now?" My answer is wait for the results on Tuesday. The turnaround will come only when it exceeds the expectations of the analyst. Meaning, its Earnings per share or revenue is more than what the analysts forecasted, then this stock will revive. Something I want Facebook to talk about is its future earnings forecast (by the company) or its plans in the future.

If its earnings fall short of expectations, just dump the stock in a rubbish dump, this stock may be going down like Nokia. For an IPO company to have 2 quarters miss is unimaginable and should not be tolerated. I am sure a lot of hedge funds will short the stock should it fail. Bear in mind it has a short float of 12.42%, which is very high for a stock! But if Facebook were to come alive, it might be this quarter too! With expectations at a low, and prices depressed by half since first day, there couldn't be a better opportunity for a cinderella turnaround story. And if indeed its earnings is good, those shortists will cover back their position and this may be turnaround story for this coming
quarter!

As I explained the real cause of the volatility these couple of weeks has been the poor performance from the tech sector. Nasdaq is the worst performing index recently, no thanks to Google, Intel, Cisco, IBM, Microsoft results.

The only to cure the technological sector wound would be to heal it with a good earnings from APPLE and AMAZON on thursday after market close US time. Both are giants and competitors in some products. We are trying to hear the iphone 5 story of Apple and the Kinder tablet story from Amazon.

There are 2 ways to look at things now. Either Thursday would be good or bad. 2 scenarios:

1) If Thursday is good, tech sector will revive, and I believe shall push S&P500 or DOW to try and test its all time 5 year high. This run may continue into December whereby tech sector always perform excellently in the christmas rally.

2) If Thursday is bad, get ready for another big plunge in the tech sector and Nasdaq composite. It might take a few days or weeks to recover from this plunge. However all is not lost as I still expect it to be a terrific opportunity to buy the tech stocks going into the christmas rally.

My point is to buy tech stocks going into the last 2 months. Just different timing. One is faster than the other.

By the way, do not expect Apple to rally much these few days before the earnings as there will be a great lack of confidence in its earnings. Wallstreet is terrified of tech stocks now as all which release results have performed terribly! BUT it is this lack of confidence that play the advantage into Apple hands. The lower the expectations, the better it is.

APPLE has the ability to change all around on Thursday. Believe me, I have seen it done it many times. A good earnings can send the whole Wallstreet into a buying frenzy. Likewise a bad earnings might cause this plunge to go deeper.

Let us all wait silently and pray...

Rgds
Daniel
www.danielloh.com

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