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Wednesday, August 26, 2009

Finally! Tech turns the corner - Durable Goods report for July-09

The Durable Goods report for July was released today. Should tech sector investors be happy?

OK, the answer was revealed in the title of this post. Yes, it's looking like tech has truly established a bottom and has begun to carve out a new trend to the upside.

Shipments --

First, we'll take a look in the rear-view mirror and review the Shipments data. The following chart shows the summary data for the tech hardware sector as a whole. Month-over-month, shipments increased 7.4% and it sure looks like the downtrend has finally been broken.


This next chart focuses just on those hardware manufactures involved in computers and related products. The gain here, 2.7%, is less dramatic but again it looks like a durable bottom has been put in and improvement is underway.


This third chart is focused on Semiconductors. Here we have the star of the tech sector. Semis just put in a 43% increase in shipments month-over-month.


New Orders --

Looking to the future, let's review the New Orders data.

In the following chart, we again look at the tech sector as a whole. New Orders are up a modest 1.6%. For the last few months now, New Orders have been increasing in a slow but sure manner and the resulting up-trend seems ever more secure.


This last chart focuses on computers and this is the only disappointing news we have. New Orders fell 2.8%, confirming that this category in the tech sector is still a little shaky. Nevertheless, the overall look of this chart suggests a bottom has been established here, as well.


Conclusion --

The common factor in all these charts today is that tech sure seems to have established a solid bottom and that a trend reversal is underway with the new trend being clearly to the up-side. Though we didn't show the charts, the Communications Equipment category also participated in the growth seen in July with Shipments increasing 6.8% and New Orders increasing 9,4%. So pretty much across the board, tech turned in some decent numbers.

Another positive factor in today's report is that Semiconductors had a great month in July. All those chips have to go somewhere and I suspect that we will see nice growth reflected in the other tech sector categories as manufacturers build the products that use those semiconductors.

Now if end user demand from businesses and consumers can ramp up sufficiently to absorb what is being manufactured, then we can expect to see these charts continue to head in the right direction.

How to play it --

Given that these charts don't single out any particular company, the way to play the tech recovery could be through ETFs. There is a good selection of ETFs that give investors exposure to the whole sector and others that carve the tech sector into separate categories such as networking, semiconductors, etc. Pick your vehicle and settle in for the ride.

Disclosure: long ROM, USD and IGN

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