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Technology Stocks : IDTI - an IC Play on Growth Markets -- Ignore unavailable to you. Want to Upgrade?

To: Steve Lewis who wrote (6251)	2/2/1998 1:54:00 PM
From: Rob S.	Read Replies (1) \| Respond to of 11555

Small cap and tech stocks in particular quite often benefit from the "January effect". That might be misnamed. The effect owes a lot to a few factors: 1] Fall/Christmas is typically the best season for both consumer, government and corporate buying. The earnings results that are reported in January are usualy good enough to add an upward bias. 2] Individuals and institutions are prone to sell off some tech stocks in late NOV-DEC for tax reasons. 3] Portfolio managers often adjust their portfolios to make themselves look good - "window dressing". They get rid of many good stocks that may have performed poorly for the reporting period even though they may have turned around and should otherwise be trending up. These things put a bias on the market (load the spring) but do not guarantee that the market will follow through. If the majority point of view is that something will happen, then that factor is probably already expressed in the market. The reason the January Efeect is fairly consistent is because it is caused or at least triggered by real factors that occur outside of market trading psychology. I expected that we would get a delayed or muted JAN effect rally this year. There had been a lot of overhanging enthusiasm and high expectations in the market last year, even despite the sell-off in the Fall. The market psychology was primed to discount good news and search for bad news and market concerns over Asia and a lessening momentumn in earnings growth have stemmed increased invesment. Another factor has been that mutual funds have had a low level of excess cash reserves. MFs usual keep about 5% to 10% in cash ready to invest in stocks. The reserves had moved down to the low end according to Mutual Fund Forecaster and other sources. The good news about that factor is that inflows into MFs have continued to be fairly storng despite recent disquieting events. So as time goes by and as fund managers rotate out of less desireable sectors, more money iss likely to come into cyclical growth sectors such semis, software and telecommunications. MFs, pensions funds, etc. are in a long-term mega trend: as baby boomers get increasingly "mature" and affluent and as there commitments to grown kids and mortgage payments, etc. subside, they are investing more income into investments. New tax laws and expectations for the welfare state protecting us all in our old age help to spur this investment. So times of market concern are not having that much effect on the flow of money into MFs as people are increasingly investing for longer-term growth objectives. A long answer to a simple question? To the point; I expect we will see some more upside for the semis and that semi equipment stocks have neared a bottom. The semi equips will go thru another 3-6 months of bad news but that may be pretty well factored into the stocks already. However, big sales and earnings revisions are posible for the next few quarters. It is likely to be a rocky market for a while despite the upward bias for semis. Some stocks that are not well positioned or are undergoing basic market changes may not participate in any rally. Intel, the great lighting rod of semis, is in for rocky times as they adjust their product mix toward lesser expensive parts and await the arrival of the next boat (Merced). Intel's margins are likely to moderate down in correspondence to their drastic reductions in pentium II pricing. I think as the Asian situation becomes clear that fear of extending the crisis to europe and the Americas will abate and the tech stocks will raly. My speculation now is that we should see more movement up now follwed by a retrencement and then a May-June rally folowed by a summer sell-off. I am hoping for a big rally next fall. This will be a "stock pickers market" so blind investment in the sector may not pay off that well for a while. Well positioned stocks such as IDTI have good upside potential.