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Tech stocks - Friday, October 10, 2008

The End Is Near, Or Is It?

You know the economic situation isn't good when you have President George W. Bush on tv this morning trying to calm the investment world and then follow-up with Secretary of Treasury Henry Paulson in the afternoon. The staff at tech:stocker believes Mr. Paulson is an extremely intelligent individual who should only be put in front of the camera to explain complex issues, not to reassure investors that everything will be alright. While we are happy to hear that U.S. government is offering capital to our banks in exchange for equity, Mr. Paulson's morose delivery style doesn't inspire us to pull out our check books and send a large amount to our brokers. Still, this plan should help buoy the financial stocks in the near term.

Today's market had a little bit of everything: irrational selling, irrational buying, and the usual drop in the NYSE while NASDAQ enjoyed a small gain. With the S&P 500 down a massive 23% this month, the question that everyone wants answered is whether or not we have hit the bottom.

After kicking this question around the office and talking with a few of our street insiders, we've arrived at one conclusion: we're not at the bottom, but we could be close. How close? That's hard to say. The staff at tech:stocker is in unanimous agreement that we are in a recession. If you look at past recessions, they are usually entered with a sharp drop in the market (I'm sure most people remember the collapse of the dot.com bubble and we also remember the recession in the early 1990s). After the drop, the market usually settles for a period before its climb back upward.

Was today a settling day? Hardly. With a 1000 point swing in today's trading, the market was anything but settled. While we were happy to see Apple (AAPL:NASDAQ) finish the week almost even with today's gains (that is not a misprint) and Cisco (CSCO:NASDAQ), Google (GOOG:NASDAQ), and eBay (EBAY:NASDAQ) posting modest gains, we would have been a little more confident in the market if Hewlett Packard (HPQ:NYSE), IBM (IBM:NYSE) and Intel (INTC:NASDAQ) had posted gains. Needless to say, we're not there yet.

But with the government's latest move to help financial institutions coupled with strong gains by Bank of America (BAC:NYSE), Citigroup (C:NYSE), Charles Schwab (SCHW:NASDAQ), US Bancorp (USB:NYSE) and Wells Fargo (WFC:NYSE) leads us to believe that the bottom may be close. If the credit markets can loosen up a little over the next few weeks, we could see a turnaround before the end of the year.

It's going to take some time to get this market rolling in the right direction. These losses are going to stay on the books for people who stayed the course for months, even years. That's why we recommend exercising a little patience and reentering the market slowly. Financials and tech stocks should lead the recovery but we're not there yet. Don't worry, you won't miss the recovery.