Börsipäev 8.märts

08.03.2005 15:53

Rev Shark:

Tech Rotation: Here to Stay?
3/8/05 8:31 AM ET

"The entrepreneur always searches for change, responds to it, and exploits it as an opportunity."

-- Peter F. Drucker

The one great certainty in the stock market is change: themes emerge, trends shift, sectors rotate, old leadership dies and new leadership emerges. We can either fight change or embrace it. The choice seems painfully obvious but many investors have a particularly tough time embracing shifts in market leadership. All you have to do is look at how long investors held on to the winners of the bubble days after the market topped out.

For many years legions of investors refused to give up on the stocks that led the wild action of 1999-2000. It couldn't be any clearer that dramatic change was taking place in the market but investors stuck with the winners of old.

Inertia is extremely dangerous in an ever-evolving market environment -- nothing lasts forever in the stock market except change. If we hope to be successful we have to be prepared to adapt to new emerging themes and let go of old ones.

One of the key themes recently has been oil. The stocks are up dramatically and there are few signs that the price of crude is cooling. What is particularly interesting about this theme is how fiercely investors defend it. They have done well with these stocks and have a difficult time even imagining that they won't continue to rise for months, if not years. Maybe they will but that doesn't relieve us from the obligation to watch for signs that change is in the air.

Yesterday we saw some signs that the character of the market may be shifting. Nasdaq stocks, particularly technology, lead to the upside while recent winners such as steel, homebuilding and oil lead to the downside. The outperformance of the Nasdaq is our first solid signal that a rotation may be taking place. Our job now is to monitor that for signs it will expand further and then act once our confidence level is high enough.

A weak midquarter update from Texas Instruments (TXN:NYSE) is making the idea of rotation more difficult but major shifts in the market are never smooth or easy; we can't expect investors to change their thinking quickly. They have to deal with their inertia and start to question the things that have been working most recently. They won't do it overnight.

The technology bulls are saying that Texas Instruments is a case of company-specific problems and should not affect the chip sector too much. We'll see but the price of crude oil is probably even more important. As long as crude oil shows an inclination to rise, a rotation into technology stocks is going to be a struggle.

We have a slightly negative open shaping up but things are better than they were last night after the Texas Instruments report. I'll be watching closely for new leadership to develop. Google (GOOG:Nasdaq) is a particularly good candidate if the rotation takes hold.

Long GOOG

Gary B. Smith:

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