Skip to main content

Durable Goods Report - tech fundamentals finally breaking downtrends?

Today's Durable Goods reports surprised to the upside and helped the stock market regain some of the previous few days losses. The following is our analysis of what the report says about the tech sector.

Semiconductors --

In April, Semiconductors put together a surprisingly strong month with Shipments showing a 34% gain over March. This month, Semiconductors gave a little back. The following chart reflects an upward adjustment for April and a very modest drop-off in May. Though the trend is still clearly down, the appearance of a bottom is finally coming into view.

Computers --

This month's outstanding performance belongs to the Computers and Related Products category where New Orders surged 9.4% after dropping mid-single digits in the previous two months. The chart below reflects a downward adjustment in April and the nice move upward in May. This chart shows the clearest evidence of the downward trend finally being broken.

Shipments in this category also seem to be stabilizing and reversing the down-trend. The following chart shows Shipments reaching their nadir back in November 2008 and struggling to maintain a positive direction since then.

A view of the entire tech sector --

Pulling back from individual sub-categories to look at the high tech manufacturing sector as a whole, the following charts look at the Computers and Electronic Products category. This includes computers and semiconductors, computer peripherals, communications equipment, storage, audio/video, navigation equipment, medical equipment and measurement and control instruments.

The good news in the tech sector as a whole is that New Orders were up 2.2% in May. This is twice the Durable Goods headline number that served as a catalyst to propel the stock market higher today. The following chart shows New Orders hitting their low in January 2009, bouncing back and stabilizing at what is a historically low level.

Shipments for the tech sector as a whole, however, are still weak. This next chart shows what could be a bottom but there are really only two data points for bulls to hang their hat on and neither one is especially outstanding. It can be assumed that a large percentage of New Orders may have been canceled and hence never turned into shipments.

Conclusion --

Last month we reviewed a set of similar charts and concluded that tech was making an erratic effort to put in a bottom despite the fact that trends in shipments and new orders appeared to still point downward. This month, the signs are a bit clearer that, indeed, the worst is behind us.

The upswing in New Orders for Computers is certainly good news, especially for companies like Dell and HP. Furthermore, this will have to translate into real shipments in Semiconductors eventually (is Intel on your watch list?). So in this case we should get improvement in two sectors.

The shadow hovering over this sunny scenario, however, is the possibility of order cancellations. Inventories have been dropping for many months now so that risk should be lessening; nevertheless, with today's tightly managed supply chains, an uptick in unemployment or some other macro-economic stumble could pull the rug out from under the sector.

Overall, the picture these charts paint is quite encouraging. If you accept that the worst is now behind us in the tech sector, then it would make sense to be scaling into tech stocks and tech-focused ETFs. Some might argue that the fundamentals do not quite justify current prices but it is clear that growth stories are lurking in this sector and growth is seldom cheap.

Disclosure: long ROM, USD and IGN


Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Thursday Bounce: Trend Busters, Swing Signals and Trend Leaders for July 9, 2009

This is a quick post to announce that we have published Thursday's Trend Leaders, Swing Signals and Trend Busters at Alert HQ . All are based on daily data. Today we have the following: 72 Swing Signals -- A couple of days ago we had 35 signals, today we have twice as many. Happily, we now have 65 BUY signals, a mere 4 SELL Signals plus 3 Strong BUYs. Whoo-hoo! 56 Trend Leaders , all in strong up-trends according to Aroon, MACD and DMI. There are 18 new stocks that made today's list and 60 that fell off Tuesday's list. 48 Trend Busters of which 5 are BUY signals and 43 are SELL signals The view from Alert HQ -- Talk about mixed signals. If you look at our Swing Signals list you would think the market was in the middle of a big bounce. BUY signals are swamping the SELL signals and we even have a few Strong BUYs. Yes, there's a good sprinkling of tech stocks and tech ETFs but the distribution is pretty broad-based with a good number of different sectors represented, eve

Trade Radar gets another update

Some of our data sources changed again and it impacted our ability to load fundamental/financial data. In response, we are rolling out a new version of the software: 7.1.24 The data sourcing issues are fixed and some dead links in the Chart menu were removed. So whether you are a registered user or someone engaged in the free trial, head over to our update page and download the latest version. The update page is here: Contact us if you have questions or identify any new issues.