The NASDAQ Composite Index broke 3,000 on Tuesday, March 14, for the first time since 2000. The 11-year high for the index brings back memories of those days in 2000 when the dot.com bubble pushed the technology-laden index to a high of 5,048.62. (The 500 or so technology stocks that trade on the NASDAQ market account for almost 50% of the market-capitalization weighted index.)

But breaking the 3,000 level isn’t either a signal to put the champagne on ice so it will be chilled when it’s time to celebrate the NASDAQ hitting 5,000 or to run in fear yelling “The sky is falling again.”

Truth is, this isn’t your father’s technology sector. We’re not headed to the moon or into the abyss. Which is why even at 3,000 this is a good time to invest in technology stocks. As long as you understand the big differences between the current technology market and that of 2000.

I can think of four major differences. Read more

Banks down, techs up today equals good news for earnings season that begins next week

Today the U.S. stock market is paying attention to sectors. Technology is up. Financials are down. I think that’s good news for investors are we head into earnings season with Alcoa (AA) kicking off third quarter reports after the close on Tuesday, October 11.

Today, as of 2:30 p.m. New York time the Technology Select Sector SPDR (XLK) is up 1.9%. That performance is a major reason that the technology heavy NASDAQ Composite, up 1.69%, is out performing the Standard & Poor’s 500 and the Dow Jones Industrial Average today.

The Financial Select Sector SPDR (XLF), on the other hand, is headed in the other direction, down 0.2% today.

So why is today’s performance by these two sectors good news? Because it shows that investors might be able to push fear to the side for long enough to pay attention to earnings for the next few weeks. I expect financial stocks to deliver disappointing earnings for the third quarter and for technology stocks to surprise to the upside.

For that to turn into actual movements in stock prices, though, investors have to actually pay attention to the results.

Big banks are looking at hits to earnings coming at them from every direction. Read more

As technology rallies go, the rally of the last week and month is suggestive but not yet totally convincing.

For the week ended on September 16, a number of stocks in the sector such as Nvidia (NVDA), Intel (INTC), Oracle (ORCL) and Marvell Technology Group (MRVL) convincingly beat the 5.42% gain for the Standard & Poor’s 500 Stock Index. Nvidia was up 11.38%, Intel up 11.52%, Oracle 12.42%, and Marvell 10.81%, according to Morningstar.com.

That’s not especially surprising. High beta stocks, like most technology stocks, should rise faster than the general market when the broad market is climbing. Nvidia, for example, has a beta of 1.61, meaning that it is 1.61 times as volatile as the broad market. (By definition the broad market of stocks has a beta of 1.) Add in the way that technology stocks have been pounded in 2011–even after this rally Marvell Technology is down 18.22% for 2011 and Oracle is down 6.07%–and you’ve got a recipe for a tasty bounce.

But the technology rally is suggestive since it’s a reminder of the coming seasonal sweet spot for technology shares. Technology companies see a huge positive swing in revenue every year in the third and fourth quarters. I suspect we’re going to get some kind of November/December rally in stocks this year once the global economy (and especially the EuroZone)  has managed to survive September and October’s very rough spot without falling apart. The historical seasonal pattern for technology shares—added to the underperformance of technology stocks in 2011—will push the sector to the front in any rally. The sector’s performance could actually be quite explosive since the sector is under owned—for many investors technology shares have fallen off the radar screen—and any rally strong enough to generate “believers” will have a very strong bank wagon effect.

In most years sometime around October 20 or so is a good time for checking the technology weighting in your portfolio. This year last week’s rally says that you ought to start that checkup—and start adding to your technology weighting–a little early.

A technology rally would lift all boats but not equally. Microsoft (MSFT) was up only 5.36% last week, actually trailing the S&P 500 and Cisco Systems (CSCO) was up just 5.06%. On the other hand, Broadcom (BRCM) rose 6.67% and EMC (EMC) 6.9%, both more than the S&P 500.

I think this week’s rally in technology shares—even if it doesn’t hold long enough to roll right into an end-of-the year rally–provides a pretty good template for where to put your money this year. (Just to be completely clear, I’m not saying that the U.S. stock market is about to launch another big nine month rally or that any end of the year rally in U.S. stocks is sustainable. I think we’re all too aware of the big problems that are still lurking out there. All I’m looking for is a relief rally if, as I continue to think likely, European governments get their act together enough to kick the Greek and Italian debt crisis down the road into 2012 or 2013. In other words, don’t fall in love with anything you might buy now and look to take profits when the news flow of not-quite-so-bad-as-expected news starts to diminish in January or so.

Okay what did last week’s technology rally tell us about where to place our technology bets for the last quarter of 2011? Read more

Now, the chip wars get nasty; expect the survivors to go after the solar cell makers

Chip makers are packing more circuits onto their chips. The next generation will be dense with circuits just 28 billionths of a meter–28 nanometers–wide.

That will expand, yet again, the power and speed of semiconductors, and increase yet again the number of places where chips can be used. The smaller and more powerful chips will wind up adding smarts to yet more “dumb” devices and making already smart devices from cell phones to refrigerators to cars even smarter.

For the chip industry as a whole that means, once the current recession is over, more chip sales, more chip revenues, and more chip profits.

There’s just one tiny problem. Because the factories that make this generation of chips cost so much–a new 28-nanometer chip factory (called a foundry) now being built in upstate New York will cost $4.2 billion–almost no company can afford to build one.

Intel (INTC) figures that only chip companies with at least $9 billion in revenue will be able to afford the next generation of factories. That’s a very short list: Intel, of course, Samsung, Toshiba, Texas Instruments (TXN), and STMicroelectronics (STM).  Add in chip Taiwan Semiconductor Manufacturing (TSM), a contract foundary that makes chips for companies without factories. That’s the total: 6 companies in the world.

The drop to six, if Intel’s forecast is correct, just continues a decades long winnowing process that has reduced the number of serious players from 14 when circuits were 90 nanometers wide to nine at the current 45 nanometer levels. Only Intel and Samsung have firm plans to build 22 nanometer factories, the next step downward in size from 28 nanometers.

You can expect the remaining players in the semiconductor game of musical chairs to fight like a passel of six-year olds for each remaining seat. That battle will define winners and losers in the chip sector, of course, but it will also shake up sectors as diverse as solar energy and automobiles. Read more