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  • Watching Big-Cap Tech for Surprises

    By Rev Shark
    RealMoney.com Contributor
    3/23/2006 9:07 AM EST
    "There is no greater evidence of superior intelligence than to be surprised at nothing."
    --Josh Billings

    The one great certainty of this market is that someone is going to be surprised. The bulls and bears have been battling back forth for months now, with the bulls claiming a partial victory so far. The DJIA, S&P 500 and Russell 2000 have moved up fairly well since the beginning of the year, but the Nasdaq and Nasdaq 100 are mired in a trading range.

    The way you perceive the overall market depends to a great extent on exactly what portion of it you are contemplating. Some groups such as the Dow Industrials look very strong, and some might even say there is too much optimism there. Other groups, particularly big-cap technology stocks, are acting like they are in a bear market. A quick glance at the charts of Intel (INTC:Nasdaq), Google (GOOG:Nasdaq), Apple (AAPL:Nasdaq), Yahoo! (YHOO:Nasdaq) and the like would make you think twice about the proposition that we have a surfeit of bullishness.

    This very clear bifurcation between portions of the market over the course of months increases the potential that we will see some reshuffling at some point. The nature of the market is, and has always been, for relative strength of various sectors to wax and wane. Eventually those groups that have been out of favor close the gap, but timing is the key, and you can go broke trying to anticipate a sector rotation.

    In addition to the potential for sector rotation, this market holds the potential for surprise due to the very confused state of sentiment. We had some discussions yesterday on the site about whether we have an oversupply of bullishness or bearishness. Since such things are not easily measured, it was mostly just a lot of opinions shaped in part by our market predisposition.

    The problem with the sentiment argument is that it does not address the level of conviction. We may have a lot of bulls or bears, but the choppiness of the trading recently is an indication that they are quick to change their mind. We have the uber-bears and bulls at the extremes, but the great bulk of folks in the middle are uncertain and skittish and seem to change their mind every other day.

    With many market participants feeling uncertain and conditions ripe for a rotation, the great likelihood is that someone is going to be surprised. And when there is a high level of surprise, the moves tend to last longer and be of greater intensity as folks scramble to reposition.

    I continue to have the gut feel that the surprise in store for this market is a rotation into technology and a rebound in big-cap technology. That is my working hypothesis, but that doesn't mean I am embracing that idea at this time. It simply is a theory I store in the back of my oversized head and consider as I contemplate the way the market unfolds. One thing I want to be very sure of is that I'm not the one who is surprised.

    We have a negative start to the day. Abobe's (ADBE:Nasdaq) earnings did not excite the market, and oil is rebounding a bit. Overseas markets were soft. Yahoo! has an upgrade this morning and will be an important indicator of whether this market is inclined to embrace big-cap techs.

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