Earnings season has begun locally and it hasn't been great so far.
We're witnessing more small/microcap penny stocks starting to put up CR now - EDE, AD1, EN1, CT1 amongst those, probably soon to follow YOJ, and maybe even BUD. What would you do in the present climate if you are a CEO of a microcap? You would be worried about cashflow because cash is the company's lifeline, not revenues. And even with a sinking stock price, most are now in the unenviable position to raise cash at the very wrong time but out of necessity. Which means more stocks to be issued for a given $ amount to be raised and leads to shareholder dilution which inevitably leads to a further round of stock price decline.
The ASX indices mask the real carnage in the stock prices of many individual stocks including good midcap companies such as Resmed (RMD), Aristocrat Leisure (ALL), Reliance Worldwide (RWC) which previously enjoyed an ever looking north stock chart trajectory. I stick to the view that regardless of how good these companies are, once their long term trendline is broken, it was time for exit. You just need to look at the charts of the above three companies. They continued to fall after their long term trendlines were convincingly broken. CSL probably remains one of the few stocks that has defied gravity from breaking the trendline but once $175 is broken, watch out, although I suspect there would be plenty of investors willing to buy the stock at that point (which does not necessarily mean that the stock can go much further below it, all it takes is a couple or more large investors to liquidate). Cochlear (COH) also broke trendline in mid Oct and subsequently fell heavily in late November before staging a good recovery.
Stock price behaviour reflect human behaviour in relation to risk perception. When most stocks have had falls and that one stock (could be a CSL or a stock you hold) has not had a proportionate fall, most people would have assumed that the worst is behind and that one stock is immuned to a fall. Just like Resmed , until it did. Then capitulation happened and you see the price goes down. And even after the initial large fall, bargain hunting would not happen immediately even though it was cheaper , people would wait for things to settle down. So the sp stays sideways for a little longer.....people would not sell the good stock when it was fully valued because they chose to be an investor and then when the sp came falling down quickly, they may have decided to take some profits while it was still positive and after the sp had fallen some 30%, they probably would be hesitant to buy some back. In today's stock market, I would not be hesitant to take profit when I have the chance in particular if I have a large investment - because you never know. Companies that have done well could no longer grow the same way they did previously because of management decisions, regulatory issues and other external factors- just look at Ramsay (RHC), Domino Pizza (DMP) and TPG to name a few. And the same could likely happen to APT, A2M and APX at some stage of their growth trajectories.
