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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (35003)	11/5/2001 3:30:56 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 70664

Friday October 26 1:36 PM ET A Bubble Is Building in Small, Obscure Tech Stocks Audio/Video [Video] Market@Midday: Markets vacillate as investors sort mixed earnings - (ON24) By Thi Nguyen NEW YORK (Reuters) - A speculative bubble in stocks of small, obscure tech firms is building. Even though the much-heralded bursting of the Internet bubble last year is still fresh in many investors' minds, it doesn't mean that the era of inflated tech stocks is over. The reason: Many investors are still anxious to buy because bets on technology paid off so handsomely in the 1990s, strategists said. Shares of small companies like software maker Avant Corp. (Nasdaq:AVNT - news) have more than doubled this month, as investors are betting the Federal Reserve (news - web sites)'s slew of interest-rate cuts and the government's proposed tax cuts will spark a rebound next year. Many pros call it a market frenzy, and are convinced the rally will fizzle. Inventories at technology companies still are too high, and experts expect more declines in corporate capital spending next year. That means profits for tech companies will keep hurting in coming quarters, strategists and money managers said. ``We're still hanging off tech,'' said Gil Knight, portfolio manager of ARC Small Cap Growth Fund who oversees $135 million in assets. ``I think tech stocks won't go anywhere until orders start to turn up. Many tech companies are still facing over-capacity and I still need to see that worked out more. It's still too early to buy.'' Eight out of 10 best performing stocks in the Standard & Poor's 600 (^SML - news) small-cap index this month are tech stocks, including Avant, up 136 percent, and media firm Penton Media (NYSE:PME - news), up 69 percent. Shares in Internet security firm ZixIt Corp. (Nasdaq:ZIXI - news) have risen 62 percent and those in Stratos Lightwave (Nasdaq:STLW - news), an optical network parts maker, are up 57 percent in October. Technology stocks in the Russell 2000 (^RUT - news) small-cap index on average have gained 15 percent this month, the best performing group in the index. The overall index fell 3 percent in the period. ``Tech stocks are probably deeply oversold,'' said Knight. ''But we've seen this before. Any time there's a frenzy (in the market), people think they have to jump in (and buy tech).'' Knight's fund has only 9 percent of its assets invested in tech stocks, much lower than the 18.7 percent weighting tech stocks have in the Russell 2000 Growth Index, the fund's benchmark index. BOTTOM IN SIGHT? Knight said he expected the market to reach bottom in December or January if there is no major event in the war in Afghanistan (news - web sites) or further shocks in the United States. ``Companies have been cutting capital spending dramatically,'' said Knight, who has kept the ARC portfolio's cash level at 16 percent for the past three months, much higher than its average level of 5 percent. ``The bottom line is next year you still see a substantial decline (in capital spending). Some stocks have indicated that they have reached bottom, but it doesn't mean that they will be going up.'' It's tough to call a bottom yet, agreed portfolio manager Ryan Crane who oversees $666 millions in assets at the AIM Aggressive Growth Fund. ``It feels like we're getting closer to the bottom but there's still a lot of risks,'' said Crane. ``We've started to selectively buy some tech names on good earnings numbers, but not in a wholesale (manner). I'm not afraid of buying tech, but I wouldn't say go buy tech just to buy tech.'' Crane has bought shares in semiconductor company Genesis Microchip (Nasdaq:GNSS - news), up 60 percent this month, telecom gear maker UTStarcom Inc. (Nasdaq:UTSI - news), up 38 percent, and digital video services provider SeaChange International (Nasdaq:SEAC - news), up 45 percent. But portfolio's tech weighting remains at 28 percent, way below its peak level at 58 percent in February 2000, CAPACITY STILL HAUNTING Third-quarter earnings reports from technology companies haven't indicated that their business will improve soon, said strategists and money managers. ``I've been looking for a large number of companies to provide some kind of visibility for the coming quarters but I haven't seen any,'' said Jim Furey, small-cap strategist at J.P. Morgan Chase & Co. ``I have to see project capital spending turn up and earnings indicators improve (to recommend buying tech stocks). But instead, I've only seen reduction of employment and cost-cutting.'' J.P. Morgan forecasts companies' telecoms spending will be down 20 percent this year and continue to decline another 5 to 10 percent in 2002. ``We remain skeptical. I think tech stocks will go sideways for another quarter or two. They will continue to be subject to excess capacity,'' Furey said.