Introduction


The Exit Cafe is dedicated to helping investors and professionals of all experience levels be more aware of changes to their risk exposure and the importance of using an intelligent exit strategy to control and act upon risk.

The editorial manager and a frequent contributor to our blog is Chuck LeBeau, an industry leader in the application of technical analysis for risk management. We hope you find our blog enjoyable, educational and valuable. Please feel free to chime in on any stories or analysis posted.

Jul 27, 2009

Has The Tech Bubble Burst

By Kevin Grewal, Editorial Director at www.SmartStops.net

As two the most tech savvy companies miss Wall Street’s earnings expectations, is the most recent rally in technology coming to an end?

Software giant Microsoft (MSFT) reported quarterly earnings of $0.36/share terribly missing Wall Street’s forecasts as it witnessed its first ever quarter of declining sales of its Windows operating systems. Global demand for the intangible product was deeply hurt by the recession and some think that businesses and individuals are holding off on upgrading systems until Microsoft releases its 7.0 version of the software. Regardless, the stock has been in an uptrend and has bounced back from a $15.15 close in March to a July 23 close of $25.56, a jump of 69%.

To add to the disappointing earnings report, the largest Internet retailer Amazon (AMZN) missed analyst expectations by posting a decline in profits of 10%. Experts suggest that its enticing deals including low-cost products and free shipping promotions have started to eat away at profits. However, it too has been in an upward trend posting a gain of 94% after witnessing a January low of $48.44 to close at $93.87 on July 23.

On the other hand, innovation tycoon Apple (AAPL) continues to outperform analyst expectations as it smashed Wall Street’s expectation, much driven by an increase in demand for its signature iPhone and Mac products. Many say that the surge in demand for the iPhone has been caused by a cut in prices and can’t be sustained. The company’s stock has rebounded nicely, more than doubling from its January low of $78.20 to close at $157.82 on July 23.

The most recent rallies have been caused by cost-cutting measures and not necessarily increases in revenues. One must wonder, can these companies continue to implement lean measures. After all, increases in revenue are probably not likely to occur anytime soon. The Reuters/University of Michigan index of consumer sentiment decreased in July, indicating that consumers are still wary of the health of the economy and will continue to think twice before purchasing that new piece of technology.

When investing in the previously mentioned equities, keep in mind they come with risks. To mitigate these risks, implementing an exit strategy is vital. According to the most recent data from www.SmartStops.net an upward trend in these equities will be coming to an end at the following price points: MSFT at $23.58; AMZN at $ 85.01; AAPL at $146.21. These triggers change as the markets fluctuate and updated data is available at www.SmartStops.net.

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