Tech Stocks Succumb

Last week was one of the most brutal corrections I have seen in a particular index - the tech-heavy Nasdaq. For the week the Nasdaq plunged 6.5%. Many of the high fliers such as Apple, Google and Research in Motion made dramatic moves down. Cisco had an excellent quarter but comments by John Chambers about weakness selling into the financial sector caused Cisco's stock to also fall precipitously.

But consider this. Even after last weeks relentless move downward the Nasdaq is still up 15.63% for the year. That is an excellent annual return by any measure. Google plunged from an all time high of $741 to Friday's close of 664, a decline of $77 a share. But you know what? Google could fall another $50 and still be up $121 since the low during the August correction.

If you catch a Wall Street analyst in an unguarded moment, he will tell you that it is hard to imagine Google not going to $1,000 a share. The only thing that can stop Google reaching that lofty level is their own lack of execution - of which there is no evidence to date. Google continues to execute well and pursue growth ruthlessly.

Charts for Apple and Research in Motion made very similar moves. But tech continues to be a huge beneficiary of global growth and have no mortgages on their balance sheets. I certainly believe that investors overreacted to the comments on Cisco's conference call. The next major "tell" for the tech sector will be the quarterly earnings report for Hewlett Packard, scheduled for November 19th. Investors will be watching closely to see if the results indicate domestic weakness such as was experienced by Cisco.

I continue to be optimistic on tech going into year-end. It is unrealistic to expect that the tech sector would continue to race upward without profit taking and some retrenchment. Technical analysts are saying that the technology charts have "broken down" portending a bear market. I'm not a technician, and I'm not so sure that is true.

I believe that Apple will have positive "buzz" going into the holidays. Apple's new iPods, including the iPhone-based iPod touch, continues to extend Apple's reputation for innovative consumer products. The European launch of the iPhone appears to be going well. Just before last week's correction one firm raised its 12 month price target on Research in Motion to $180 (closed Friday at $113.22). Research in Motion continues to release strong products and expand international growth.

It is hard to predict what direction the stock market will head this coming week. This coming Friday is November options expiration. There is quite a bit of economic data being released and more yapping by the Federal Reserve Governors. Chairman Bernake testifies again before Congress. Options activity combined with everything else will almost certainly mean a high level of volatility, both up and down during the week. We may even see a "30 handle" on the VIX this week.

Disclosure: at the time of this posting the author was long GOOG, AAPL, RIMM and HPQ.