Text 16225, 110 rader
Skriven 2007-02-18 08:18:10 av mike (1:379/45)
Ärende: Looking at Technology: Caution is Warranted
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From: mike <mike@barkto.com>


http://bigpicture.typepad.com/comments/2007/02/rra_looking_at_.html

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NOTE:  This Market Commentary alert was originally emailed to subscribers at
Ritholtz Research & Analytics on Thu 2/8/2007 6:12PM; This is posted here not
as investing advice, but rather as an example of a trading call for potential
subscribers. We expect to post future advisories in a similar manner -- after
the call, but in the correct chronological location on the blog.

>>>

We continue to watch the Nasdaq 100 very closely. While we have found pockets
of strength, there are also signs of non participation and actual weakness in
the Index. Given the traditional leadership of Technology, this remains
worrisome.

We looked at why this Technology rally has been different from prior moves. We
have attached our conclusions.

We also that we have been finalizing our research into the sub-prime mortgage
markets, and should have that ready by early next week. As we do this, Mortgage
Underwriters and Home Builders have been running into trouble. This research is
unusually interesting, and we expect you to find the results quite intriguing.

>>>

Some of the best known and largest tech stocks have done exceedingly well since
the July 2006 market bottoms: Cisco, Oracle, Microsoft, Google, Apple, Akamai,
Sun Micro, EMC, have all put together an impressive streak.

There can be little doubt that the environment for lots of tech firms have
improved notably since 2002. Balance sheets are much better, new web apps (User
generated content, Web 2.0) have made up for the decreased demand from the
enterprise side. Indeed, much of the excitement in Techland these days is from
the newest tech properties: The YouTubes, MySpaces, and Googles have been where
the action is. Cisco has been enjoying the growth of the Video over the
internet business (See above names), which according to CEO John Chambers, has
been booming. (Apple is a unique creature courtesy of a breakout product).

But not all tech firms are enjoying a resurgence. Not participating have been
those companies with “issues;ö Intel and AMD are stuck in competitive price
wars; other firms have had management problems (Dell, Yahoo!) or are having
problems with recent acquisitions (eBay); still others can’t seem to get out of
their own way (JDSU). Indeed, many tech companies for one reason or another
have been mostly exempt from the Tech Rally: SAP, Symantec, Sirius/XMSR,
Citrix, Flextronics, Qualcomm, etc.

Then there’s Microsoft.

Since July, its stock is up 50%. We’ve consistently heard three themes given
for the move up from MisterSoftee Bulls:

- The introduction of Vista

- The roll out of the new MS Office

- Zune (The iPod killer)

It is hard to describe these product introductions as anything but
disappointing. Despite a $500 million dollar advertising budget, Vista arrived
with a thud. Only 15% of existing PCs are equipped to handle an upgrade to
Vista; Fortunately for the PC makers, Vista’s introduction has led to a surge
in PC sales. Indeed, Consumers will primarily get Vista via new PC purchases,
and not through (profitable) upgrades. Its looking more and more like the
current upgrade cycle won’t be remotely close to that of Windows 95 or XP –
missing most of that extra revenue and profit.

And, as far as Enterprise users are concerned, most of the major tech
consultants (Gartner, Yankee Group, McKinsey) are advising IT departments wait
at least a year before migrating over. The new version of Office has been
favorably reviewed, but the huge learning curve may dissuade a rapid migration.
As to that mighty iPod slayer, the Zune – it was pretty much DOA. Its program
head was unceremoniously shown the door (“he wants to spend more time with his
familyö). The Apple iPod freight train felt the impact of the Zune like it was
a bunny sleeping on train tracks.

Given all this, Microsoft’s shares have begun to soften. We suspect this is due
to reality starting to get recognized by the investing community that is
partial towards tech.

With Microsoft softening, the charts are showing signs of technical
deterioration. They have made a lower low; and the uptrend in place since July
has been broken. This is not a particularly healthy technical signal.

~~~

We continue to wonder why technology has been so inconsistent, eschewing its
traditional leadership role in a bull market. Leaving aside Semiconductors –
which have not participated in a meaningful way in the rally, or in nearly any
recent time frames – technology and telecom has seen an uneven, even lumpy
distribution of gains.

Given this mixed performance, we wonder: Has the sudden improvement in
Technology Indices since July 2006 been fundamentally driven, or might
something else entirely been driving share prices?

Let’s look at some charts for a clue. Prior to this recent leg up, Tech and
Telecom have significantly underperformed other sectors:

Since the 2000 peak, or the pre-war lows, Tech & Telecom have enormously
under-performed:
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 /m

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