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What The Market Wants: Technology Stocks Under Siege

 April 17, 2012 03:38 AM

(By David Brown)Here we are again wondering what the market wants.  Today, it clearly wasn't Technology stocks, as various issues dragged both Apple (AAPL) and Google (GOOG) lower. Apple has been hurt by the likelihood of rising supplier costs from its Chinese supply chain related to the poor working conditions issue.  In addition, the Federal Government, along with 15 states, announced an anti-trust suit against Apple and a number of book publishers for price collusion. If successful, the suit would lower e-book prices, favoring Amazon and hurting Apple due to its alleged collusion with the book publishers.

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Google, meanwhile, faces a significant lawsuit of its own from Oracle over its alleged use of Java technology in Androids. Separately, the FCC fined Google over its alleged violation of privacy rights from its Street View service.  And if all of that was not enough, institutional shareholders are raising concern over Google's 2-for-1 stock split last week, since the new shares will not carry voting rights.

Since both Apple and Google have recently hit new highs, it is not that surprising that these issues, which in total are unlikely to have very serious effects on either company, could indeed generate a wave of profit taking.

It was a bit of an odd day with the DJIA up 70+ points and the NASDAQ losing over 23 points while the S&P 500 "sat" there finishing nearly "dead even" (-0.7%).  But it does conclude another week of losses for the S&P, now nearly 3% off its high two weeks ago of 1422.

[Related -Gold hasn’t lost its allure in my portfolio]

Globally, we're still faced with a lot of "small" problems.  Although none by itself is a cause for alarm, how many times can you say "small problem" before the aggregate "small problems" become a large problem?  Spain continues to flounder with bond yields rising back to dangerous levels. Stability in Egypt is wavering. Ditto for Afghanistan and Pakistan.  After last week's embarrassing rocket launch failure, Korea may decide that it needs to prove its competence by testing another atomic device. There's a lot to worry about but still a paucity of alternatives to the equity markets for decent returns.

Valuations still seem reasonable against historical norms.  Basic Materials and Financials are both oversold due to legitimate concerns that may have driven their respective sector prices too low.  Consider the strength in today's Financial sector led by Citigroup (C), up nearly 2%, despite missing all their numbers, and last week's strong reports by JP Morgan (JPM) and Wells Fargo WFC).

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