Friday, September 09, 2005

TECH STOCKS IN LIFT OFF MODE

Strong mid quarter estimates for TXN has helped lift tech stocks around the world. Japan is having a good day (tonight).

It has been widely reported that Mr. Russell of the Dow Theory Letter has turned at least temporarily bullish. His record is one of the best. He likes the new high posted by the utility index. He expects other indices to follow.

I like the flight to quality aspect of the utility index, the very nice two year treasury run and the relatively heavy big stock versus NASDAQ trading. The ratio of big to small trading is as high as I can recall!

Furthermore, put call ratios, Bull to Bear ratios, stock to bond yield ratios, and other fundamental and sentiment indicators are either screaming "BUY". Some are only talking loud and indicators such as these are sometimes early or even more out of whack but the anecdotal evidence supports the "BUY" scream. One of the classic indicators happened to a friend of mine last Friday. He had a client call to say he could not take it any more. He said to sell it all. My friend tried to reason but one cannot reason with raw emotion. The entire diversified account was sold last Friday (the next market day, Tuesday, was a triple digit up day). This story is the same as countless others that have "called" market bottoms. Is it not amazing how negative US citizens have become during a time of great prosperity? Nothing a 300 point move in the S&P wouldn't fix.

The legacy airline stocks are up against the energy wall while enjoying the highest load factors in years. The situation with DAL and NWAC is very tricky. Bankruptcy would increase the chance that these carriers will survive long-term. Bankruptcy would allow them to dispose of significant pension liabilities in addition to the expected reduction in labor costs. Ironically, CAL, AMR and other stronger carriers would just as soon see these guys limp along selling off assets rather than preparing to come out of bankruptcy as strong competitors. The pilots and other employees are crazy not to save their jobs and their pensions but the problem is that all cannot be saved. Still, saving the carrier and keeping the pensions in force would be the wise choice.

The wall of worry for the airlines is huge. When the upmove finally comes, the surviving carriers will make a fortune. My family has its largest investments in the stronger members of the group. CAL is by far our favorite.

If I were to find a pile of extra cash, I would consider the purchase of GLW, DELL, HPQ, and INTC right now. Corning is selling flat panel monitor screens like hot cakes and the fibre-optic business has several great years ahead. Consumers who begin to stream GOOGLE and YAHOO TV are going to want multimedia computers. The pocket TV's of past years are not the same as the new TV's that are coming to a pocket near you. The TXN DLP technology is another booming business.

Is TECH on a major breakout? If it is, you surely do not want to miss the fun!

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