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2006-07-10 :: Tech Trashed

With all of the discussion in my blog and in the media, you’d think that energy and metals are the only things that have been going down in the market.  Actually, the big loser since the market began its correction is technology.  In particular, anything consumer related has had a very difficult time since Microsoft announced its delay in rolling out Vista.

As you can see from the chart above, NASDAQ, which had been steadily climbing since the market correction of 2000-2003, has returned to its level of a year earlier.  There is so much selling pressure that we are now seeing sales of market darlings as people just try to get out of the tech slide.

If we look at the slide from a strategic perspective, particulary from a market corelation standpoint, technology is inversely corelated to commodity stocks.  As we move forward in the commodity stock bull market, I truly believe that the losing sector will be technology and it will give up market share to commodity stocks.  We will see ups and downs as in any market, but the primary direction for commodity stocks will be up based upon earnings and fundamentals, and the primary direction for tech stocks will be down based upon p/e ratio contraction.   The bounce back rally in tech from the crash, in my opinion, is over.  The beneficiary will be energy, metals, and infrastructure.

The other thing that has me puzzled is that the defensive cereal, beer and diaper stocks are trading as a group at valuations double their growth rates.  Now is definitely not the time to be buying those stocks.  I’d rather buy stocks with > 20% earnings growth and for a P/E of 6 or 7.   Its not rocket science, its just sensible.

We’ve been selling tech stocks since the market correction began.  They are our primary source of funds which we have been and will continue to reallocate into energy, metals, and infrastructure. 

Anyway, more later!

Mark