Question: What do Rita and Tech have in Common?

The Bulls showed some oomph near the end of the day and managed to keep the pullback form getting out of hand. As we mentioned in our prior post, some healthy consolidation is in order. The more the market can shake out the non-believers the better the tech rally will be. Certainly the Semiconductors are doing a great job in offering tremendous discouragement and an overall dose of nausea to market Bulls. The fact that the fundamental news flow in that group is solid yet the stocks continue to languish is causing tremendous frustration for many Bovines.

In classic form we expect the Semiconductor Index (SOX) to catch some type of catalyst (i.e. analyst sector upgrade) that will throw everybody off guard. This event is usually followed by a fundamental data point, such as a strong mid-quarter update, which confirms the analyst upgrade. From that point on the SOX should resume leadership into year-end. That is our prediction and we are sticking to it!

After-hours F5 Networks (FFIV) beat, InfoSpace (INSP) had a huge guide up, and Adobe (ADBE) reaffirmed guidance at the high end of expectations. However, Flextronics (FLEX) had poor results and guidance as well as did Amazon.com (AMZN) on the guidance. All-in-all the fundamental news flow from tonight's earnings as well as the slew of companies that have reported thus far seem to be pointing to ALL SYSTEMS GO for the much anticipated Tech rally. Perhaps a little more shakeout in the traditional Semiconductor leadership group needs to occur before more stock appreciation can take place.

If You Held a Taser to Our Head:
Answer:
Many market participants were positioned Bullish for a "post Rita rally". The market did an excellent job in shaking out those traders before finally delivering the rally that was fundamentally deserved. We believe the same scenario is setting up in Technology land.

See You Tomorrow.

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