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Thursday, May 27, 2010

Durable Goods Report -- No disappointment for me

Well, I'm a few days late in providing my analysis of the most recent Durable Goods report but better late than never.

The headline number for April was strong (New Orders up 2.9%) but many analysts pointed out that ex-transportation, (transportation comprised mostly of contributions from Boeing) the overall number for new orders decreased.

Be that as it may, I mostly focus on tech and in that sector the news was much better as the following charts will show.

Today I will only be presenting the two charts that show Shipments and New Orders for the Computers and Electronic Products category which is a summary or aggregate of Computers and Related Products, Communications Equipment and Semiconductors. The folks who compile the numbers have decided that Semiconductors will no longer be tracked separately but will be included in the aggregate Computers and Related Products numbers.

Shipments --

So let's start with a little history. Shipments are a backward looking measure as they reflect new orders that have been confirmed, manufactured and shipped. The following chart shows how shipments look for the overall tech sector:

You can see that the monthly data series is volatile but that the trend is clearly upward. Indeed, we are reaching levels seen prior to the Great Recession.

New Orders --

The forward looking measure that Wall Street gives the most credence to is the New Orders number. The following chart shows New Orders for the tech sector:

The trend for New Orders remains unmistakably upward. This bodes well for the coming months and, given that the summer can sometimes exhibit a seasonable slowdown in the tech sector, this is an especially welcome sign.

Conclusion --

Tech stocks and tech ETFs may seem to be struggling in the stock market these days but the sector continues to operate from a position of strength. From a fundamental point of view, tech is moving conclusively off its lows and the upward trend remains intact. This would seem to be confirmed by the positive guidance tech company management provided during the Q1 earnings season (see post "So who do we listen to? Management or the stock market pundits?")

With the market well off its highs, this looks an awful lot like a buying opportunity for tech and the Durable Goods report, far from being a disappointment, only proves the point. I've made my move (see disclosure below). What about you?

Disclosure: recently re-entered positions in ROM and USD

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