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How to Protect your Wealth by Investing in AI Tech Stocks

Stock Markets Give Ground to the Bears

Stock-Markets / Global Stock Markets Oct 16, 2007 - 08:59 AM GMT

By: Regent_Markets

Stock-Markets Last week the bulls finally gave some ground to the bears with the US markets hitting reverse gear on Thursday after making new record highs on the day. There was no obvious reason for the reversal other than the general feeling that things were getting a little ˜frothy'.

The tech sector took the brunt of the selling, just as it has been enjoying the lion's share of the gains. The Nasdaq 100 was hard hit hard, with sellers dragging down stocks like Google and Apple from their stellar orbit. What is remarkable about the performance of the Nasdaq is that there has been relatively little media attention paid to the tech rally Mk II.

The sub prime problems hogged the headlines of late, but the villains of the last bubble had become the unsung heroes of the recent rally. At the time of writing, the S&P 500 has recovered 14% from the subprime low. Meanwhile the Nasdaq 100 has recovered 14% and the internet sector 20%. The main stars have been Google (up 37% this year alone), Apple (up 97%), RIM (Blackberry, up 177%) and Amazon (up 144%). One of the year's highest flyers also got hit the hardest last Thursday and dragged the sector down with it.

The Chinese search engine Baidu crashed 11% on the day but is still up a remarkable 174% for the year. With such gravity defying growth rates it may not be wholly surprising that the markets stalled last week.

The big question of course is whether this was just some healthy profit taking or the turning point for these ˜new new things'.

The wider economy is looking weak, but the least round of results indicated that US companies are in rude health (housing and banking stocks a case apart). Tuesday's Fed minutes hinted that another rate cut was on the cards. This could help the engine of the US economy, the consumer. Consumer spending seems to be holding up despite a dire housing market. Western central banks are currently stuck between a rock and a hard place. Rate cuts may be required to stave off thoughts of a recession, but inflation pressures do remain with oil, gold and wheat still stretching higher.

Next week's US housing market data will be followed keenly by economists and traders alike.

Wednesday's MPC minutes will provide some hints as to the likelihood of a UK cut follow the US. British retail sales figures and GDP data will round off what looks to be a data heavy week. Key tech names such as Intel, Yahoo, Ebay and Google all report earnings next week which should make for some interesting trading at least.

This data could produce some volatile moves and with the Nasdaq a candidate for further explosive action, a volatility play could be the best option next week. In addition Friday is options expiry day which usually leads to volatile price movements.

According to traders, an up or down trade rewards the trader if either of two levels are touched. Only one of them has to be touched once for you to win. An up or down trade with a high trigger of 2855 and a low trigger of 2750 returns 10% over 10 days. This equates to roughly 50 points either side of the current price level. The bulk of the earnings start from Wednesday with Thursday offering the greatest number of earnings announcements by far. Therefore you may wish to leave it until later in the week before placing a similar trade, especially with Bernake speaking on Friday.

By Karen
Tel: +44 1624 678 883

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