Earnings Bring BIG OUCH for Tech Stocks - 500 Beiträge pro Seite

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Saturday October 28, 6:47 am Eastern Time

Earnings Bring BIG OUCH for Tech Stocks
By Pierre Belec

NEW YORK (Reuters) - Bad earnings have brought a BIG OUCH for technology stocks, and the `buy on dips` crowd may be tempted to jump in. One expert says don`t do it, but another says the bears are reacting with characteristic excess.

The tech-laced Nasdaq composite index has been put through the wringer, and the sell-off, which has been more severe than in the rest of Wall Street, reflects a collapse of confidence.

The nasty thing is that the bearish psychological effect could last for a long time, analysts say.

``When the Nasdaq index plunges relative to the overall market, the comeback has historically been far slower,`` says David Ranson, research director for H.C. Wainwright & Co., Economics Inc. ``This historical fact dominates the current situation.``

But, he cautioned: ``It is not safe to buy tech stocks `on the dips` when Nasdaq plunges out of proportion to the market as a whole.``

Nonetheless, there are still some bulls out there who believe that Wall Street`s bearish mood is overkill. The reason: Investors are known for their excesses. In the spring, they put stocks through the roof and the odds are that they may overdo it on the downside.


BLAME THE YOUNG, INEXPERIENCED FUND GUYS


James Dines, editor of the Dines Letter, an investment publication, says the tech stocks are the victim of a major transition by the inexperienced fund managers who jumped on board the Internet wagon this spring, as a slew of new Internet-related mutual funds were launched.

Dines, one of the original Internet-stock gurus, said the unseasoned money handlers, who chased the new funds to record highs, are now shifting from the Greed Mode to Mass Fear.

``The reason the high-tech downtrend is not company specific ... is that terrified fund managers are dumping everything in a capitulation more often seen near market bottoms than tops,`` he said.

And, the selling has done the entire Internet sector even more damage because it has slam-dunked some of the superstars in the tech crowd, which he sees as another sign that the selling might be nearing an end.

The tech stocks that dominated the bull market last year -- and sent the Nasdaq index on a moonshot ascent of nearly 87 percent, the biggest gain ever for a U.S. stock exchange -- are this year`s dogs.

The Nasdaq Composite index, a technology-laced market gauge, is down a bone-jarring 35 percent from its March 10 high of 5,048.62, putting it firmly in bear territory.

But the broader indices, with a more generous mix of stocks, are holding up nicely.

The Standard & Poor`s 500 stock index is down only 9 percent from its March 24 peak and the Dow Jones industrial average is off 9 percent from its high water mark set on Jan. 14.

Caught in the tech wreck are such names as Nortel Networks Corp. (NYSE:NT - news; Toronto:NT.TO - news), the world`s No. 2 telecommunications equipment maker, which lost 30 percent of its market value, or $55 billion, on Wednesday when it disappointed the Wall Street Gods.

Computer chip-maker National Semiconductor Corp. (NYSE:NSM - news) was also taken to the woodshed after it warned of slowing sales.

Money also left Lucent Technologies, (NYSE:LU - news) the world`s largest telecommunications systems maker, Motorola Inc., (NYSE:MOT - news) the second-biggest cell phone maker, and Yahoo! Inc. (NasdaqNM:YHOO - news), one of the largest Internet companies.

The bigger the name, the bigger the market splash. International Business Machines Corp. (NYSE:IBM - news) hovers at $89 following a dizzying fall from this year`s high of $134 and Intel Corp. (NasdaqNM:INTC - news) trades at $43 after freefalling from $75.


RANSON`S ADVICE


The sell-off accomplished one thing. It reminded investors that stocks have a habit of falling more quickly than rising, especially those that have ignored traditional valuations. It`s the law of gravity.

Another law on the Street says it takes a market a long time to build itself up but a very short time to fall apart.

Tech stocks came down hard because they were charged up with a high level of emotions as investors embraced the `New Economy` during the last five years.

But the technology-loving bulls sobered up after discovering that this year`s third quarter was a bummer as the economy slowed under the weight of Federal Reserve Chairman Alan Greenspan`s batch of higher interest rates and a surge in oil prices.


PERCEPTION CAN BE EVERYTHING IN THIS MARKET


``The big divergence between the `New` and `Old Economy` stocks is a serious problem,`` Ranson said. ``It signals a change of view about the outlook for the tech sector.``

What`s happened is that investors had priced some of the tech stocks based on a perceived potential value of these companies. In many cases, the firms won`t reach maturity for years.

``There are no ways of using conventional techniques in evaluating a stock or company and applying it to a high-technology business where everything is based on the future and everything is simply a matter of predictions or guesswork,`` Ranson said.

In particular, New Economy companies such as those associated with the Internet, have no history or accounting benchmarks.

``In the absence of any objective discipline by which such enterprises can be valued, individual investors have been drawn to stocks that have attracted a following -- the age-old `strength in numbers` approach,`` Ranson said.

As a result, investors imitating each other and jumping on and off the bandwagon have created a ridiculously priced, momentum-driven market.

Ranson said the unscientific pricing of stocks has also spurred a tremendous amount of market volatility.

``As the Nasdaq gropes its way along by trial and error, it is impossible to know whether it has over- or under-priced itself at any particular time,`` he said.

``Although we can be confident that any sudden downturn in the general market is a buying opportunity, there is no historical basis for expecting tech stocks to recover relative to the general market,`` Ranson said.

For the week, the Dow Jones industrial average was up 364.03 points at 10,590.62. The Nasdaq composite index was down 204.78 at 3,278.36 and the Standard & Poor`s 500 index was off 17.35 at 1,379.58.

(Questions or comments can be addressed to Pierre.Belec(at)Reuters.com).


http://biz.yahoo.com/rb/001028/d.html

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