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Thursday, November 8, 2007

Overweight Tech No Longer

It wasn't so long ago that I wrote a post titled "Why I'm Overweight Tech". After today's volatile day, I can no longer say that I'm overweight tech.

After Cisco's report of a very good quarter and good but not great guidance, tech stocks sold off heavily. As for the TradeRadar model porfolio, both Cisco (CSCO) and the ProShares Ultra Tech ETF (ROM) hit their stops and were sold. ROM ended up returning only a couple of percent during the short time we held it but gains on CSCO were about 18%.

It is telling that Cisco's guidance had such a lethal effect on the markets. Here is an example of investors suddenly looking at the glass as half empty rather than half full. As other bloggers have put it, today we realized we could no longer hide in tech while the rest of the market (financials, homebuilders, cosumer discretionary and recently retailers) showed signs of weakening.

A bear by default --

As a result of the stops that were hit today, the model portfolio has taken on a bit of a bearish tinge. We have held a little of the ProShares UltraShort QQQ ETF (QID) for some time now. We continue to hold the ProShares UltraShort Real Estate ETF (SRS) and we recently bought the ProShares UltraShort Financials ETF (SKF).

In other portfolio news, we were also stopped out of China Automotive Systems (CAAS). For the last several days the stock has rallied most of the day only to crumble going into the close. Today it just headed straight down to the point where it was sold.

What's next --

I have no clue if this is the beginning of a bear market or just another hiccup. The damage to the charts indicates to me that we will need to wait for a while to see what direction the trend will take from here. Certainly there is plenty of bad news fueling the bearish outlook.

What I do know, however, is that the long term story on Cisco remains strong and the company continues to dominate its competition. The same can be said for other tech companies like SanDisk (SNDK). I intend to watch and wait and hopefully find low risk, lower priced entry points for each.

Disclosure: author holds QID, SKF and SRS

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