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TORONTO (GlobeinvestorGOLD) - Remember the year 2000 when Internet stocks were all the rage? The Internet Index was at its peak of 688.52, having increased 927 per cent over a 4 ½ year period, and analysts were falling over themselves proclaiming that normal business models didn't apply to the Internet sector. Huge gains were said to be still around the corner. Well, we all know what happened next. Since the meltdown to a low of 57.03 in October 2002, the index has reversed course, trending higher and reached a multi-year high of 188.01 in January 2006. So what's in store now? Technical charts suggest that the Internet stocks may be in for a brief consolidation period, which will offer investors a buying opportunity to ride the next Internet wave.
A company of interest in the arena is newcomer TOM Online Inc., a foreign national company, which made its debut on the NASDAQ in March 2004 at $15.55 (U.S.). A leading wireless Internet Company in China, it provides value-added multimedia products and services in wireless Internet services and online advertising, targeting the young and trendy Chinese demographic. "The Company offers an array of products such as SMS, MMS, WAP, wireless interactive voice response services, content channels, search and classified information, free and fee-based advanced email and online games."
After its initial Nasdaq listing the stock went on a bit of a roller coaster ride, formed a double bottom over an 18-month period and in January vaulted to a an all-time high of about $24 for a 59 per cent advance from its September 2005 breakout. However, as the stock advanced the MACD diverged negatively and the share price also formed a negative expanding triangle. In addition the moving averages are negative all of which suggest further downside ahead. The stock rallied to $22 on Thursday Feb. 23 and as the stock appears headed lower to retest its up gap breakout at about $16.35 the rallies should be sold. The $16 level should offer support and an opportunity for investors to get involved in the Chinese Internet market. From that point expect a renewed rally to take hold and a rally back up to the bullish flag pattern's technical target of about $27 over the next six months.
Staying with the technology sector will likely yield substantial profits over the next year.
An Israeli company, Ceragon Networks Ltd., which is a broadband wireless-network equipment maker, appears to be another interesting company to add to the portfolio. "Its products provide high-speed, fibre-like transmission quality and can be deployed more rapidly and cost effectively than fibre optic lines. These products operate over most of the 6-38 gigahertz (GHz) high-frequency bands, which are licensed by various countries in North America, Europe, Middle East, Africa, Latin America and the Asia-Pacific region."
The stock recently vaulted 96 cents to a high of $4.88 out of a bottom consolidation pattern and above a year long downtrend when it announced on Jan 9, 2006 that it had signed an original equipment manufacturing agreement (OEM) with Nokia. Although the share price has pulled back from its recent high, the gap up opening that was produced remains in tact and the stock also vaulted over the 200-day ma. Since then a double bottom support level at about $4.40 has formed and should be used as a stop-loss level. The MACD negative divergence is of some concern, however it appears as though it is trying to turn positive as the stock consolidates. A close of $4.80 or better would suggest a quick rally to about $5.19 with a further continued uptrend to a possible target, defined by the October 2005- January 2006 saucer bottom, of about $6 over the next four months.
Yola Edwards is a contributing writer and technical analyst for Bell Globemedia Interactive, providing options and technical analysis research on a variety of North American equities.