Investment Contrarians

Technology Sector at the Bottom of the Pack: Time to Give Up on These Stocks?

By for Investment Contrarians |

Technology Sector at the Bottom of the PackWith capital shifting into the perceived safety of blue chips and large-cap stocks, small-caps and technology stocks have been declining on the charts.

Given the advance so far this year in the equities market, it’s understandable to expect some hesitancy.

The Dow is up 13.4% as of April 12, and it’s on pace for a gain of 47% on an annualized basis.

I doubt this will happen and expect market adjustments in the equities market along the way. The same goes for the S&P 500 and the other key market indices.

Small-caps in the equities market have also fallen off since the end of the first quarter.

At the back of the pack is the technology sector; but there has been a lack of strong leadership from any sector, including the semiconductor, Internet, and technology sectors, in general.

The following chart shows the recent movement of the three sectors (semiconductor, Internet, and technology) since March and their sideways direction.

Internet Index-Interactive Week Chart

Chart courtesy of www.StockCharts.com

Without any leadership in the equities market, the NASDAQ and technology stocks will continue to drift. However, there are some opportunities for speculators searching for contrarian situations.

The Internet sector is flat and lacking a clear direction.

In the stock chart below, the First Trust Dow Jones Internet Index (NYSEArca/FDN) fund shows the sideways channel that has been in place since late January.

Extrapolating on this data, I don’t see any strong and clear signs of a breakout at the top channel line, but if you think longer-term, there are opportunities in the equities market.

First Trust Dow Jones Internet Chart

Chart courtesy of www.StockCharts.com

The “Best of Breed” in the Internet sector is Google Inc. (NASDAQ/GOOG). The stock was trading above $840.00 in early March amid wide speculation that Google would inevitably become the first $1,000 stock in the equities market. Time will tell if Google really is the stock to break $1,000. Remember that Apple Inc. (NASDAQ/AAPL) was also speculated to be the next $1,000 stock in September 2012, and here we are now with Apple precariously sitting just above $400.00.

Google Inc Chart

Chart courtesy of www.StockCharts.com

As the risk-taking in the equities market increases, we could see a move into Internet stocks that have missed out on the advance.

Two contrarian Internet plays come to mind—Groupon, Inc. (NASDAQ/GRPN) and Facebook, Inc. (NASDAQ/FB).

Groupon has surged 23% since I highlighted the stock as a contrarian play back in early March. Whether the stock can move higher will depend on its ability to fend off the competition and increase stickiness on its site.

A more intriguing pick is Facebook, simply because it has more than one billion subscribers and is showing growth in its mobile advertising strategy.

Note: the information contained in this article is not to be construed as advice to buy any stock; rather, it is meant to provide examples of a good investment opportunity in the equities market.

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