To Heck With Tech! Some Key Gurus Staying Away Short Term

GuruVision: Chivalry Is Dead

SAN FRANCISCO -- Into every breach, someone must plunge. But after the Nasdaq Composite's latest breach of "critical" technical levies, any investors willing and able to make the leap once again will go it alone. Some previously bullish gurus won't be leading the charge.

Following the Comp's latest tumble -- it fell 4.4% to 2318.36 today, its lowest close since Jan. 2 -- you might expect those optimistic about growth stocks to be rallying the troops for another counterattack. But these captains aren't planning to go down with the ship.

Previous GuruVisions

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And the Winner Is...

"I'm not going to jump in front of the train," said Brian Belski, fundamental market strategist at U.S. Bancorp Piper Jaffray in Minneapolis. "Long term should you be in tech? Absolutely. Should you be building positions today? No."

Belski has recently recommended big-cap tech names, the kind that mainly got clobbered today as the Nasdaq 100 fell 5.3% to 2095.11, or below its close on Jan. 2, the day before the Federal Reserve's intermeeting rate cut. (The NDX remains just above its Jan. 3 intraday low of 2087. The Comp, meanwhile, remains above its Jan. 2 close around 2292 and Jan. 3 intraday low near 2252.)

This morning, the strategist focused on how year 2000 was "a lesson in textbook contrarian investing."

Extrapolating the trend, "the continued negativity surrounding growth stocks is providing a major contrarian signal to buy in our opinion," he wrote, recommending Best Buy (BBY Quote), Boston Scientific (BSX Quote), Dell Computer (DELL Quote) and JDS Uniphase (JDSU Quote). (U.S. Bancorp Piper Jaffray has done underwriting for Boston Scientific.)

To his credit, Belski also offered recommendations for those who eschew the contrarian approach. Furthermore, he didn't shy away from the immediate error of his ways.

Today, the contrarian play was "so wrong it's unbelievable," he said.

In Belski's defense, no guru should be judged by one or two days of market activity. Additionally, perhaps the best thing a strategist can do is adapt to changing conditions, as Scott Bleier, chief strategist at Prime Charter, declared.

"We can't change [our opinions] everyday, but we can't be so arrogant as to not adapt," Bleier said. "What has changed is the Nasdaq has to make a new low" and will likely do so tomorrow morning.

The strategist, who long ago conceded his concrete floor call from Dec. 5 was in error, estimated the Nasdaq may have to fall to around 2000 near term before it can regenerate positive momentum again.

"These tech stocks are like Superfund sites -- they're radioactive," he said. "Everyone is resigned that if they're in tech, they're ruined."

The silver lining in all this is that Bleier believes very soon there will be opportunities to make long-term investments (vs. trades) in many high-tech bellwethers, despite the current limited earnings visibility.

In Bleier's defense, he has long recommend investors not "marry" high-tech names and his recent picks have outperformed the broader market.

Clearly, Bleier and Belski are just two of many gurus wrestling with this dilemma today. Even RealMoney.com's uberbull Don Luskin appeared to be throwing in the towel in the Columnist Conversation today.

But lest you think we're having another towel-throwing party, note the latest from Thomas Galvin, U.S. portfolio strategist at Credit Suisse First Boston. The current dean of growth stock gurus lowered his recommended weighting in financials today, in part, because "the history books suggest that tech, telecom and consumer cyclicals provide much greater returns subsequent to the second Fed rate cut."

Elsewhere, Jeffrey Applegate, chief investment strategist at Lehman Brothers, devoted his weekly commentary to why S&P 500 earnings growth this year -- he's predicting 4% -- in conjunction with continued Fed easing will allow multiple expansion. That, Applegate argued, justifies a continued overweight in tech; he's at 30% of equity allocation vs. 22% of the S&P 500.

Finally, I didn't see any new commentary today from gurus such as Abby Cohen at Goldman Sachs, Ed Kerschner at UBS Warburg or Robert Robbins at Robinson-Humphrey in Atlanta. But if any of the tech advocates had capitulated, I suspect we would have heard about it.

The Other Side of Guru Valley

Still, given the diminishing support for tech among the gurus and rising bearishness -- as evinced by sentiment indicators and put buying -- an argument can be made the Nasdaq is setting up for yet another of its vicious, bear market rallies.

That is the expectation of Don Hays of Hays Advisory Group, who admitted the obvious in an interview today -- that his recent prediction the Nasdaq would hold support at 2420 was erroneous.

"You have to go through this and almost always have to break some kind of support levels that drives the technicians away," Hays said. "That's the last give-up and I think we're close."

The veteran strategist took heart that nothing worse is transpiring because the Philadelphia Stock Exchange Semiconductor Index remains well above its late December lows around 530. The SOX fell 7.5% to 612.11 today.

The Nasdaq remains in the interlude rally phase between the second and third stages of its bear market, Hays declared. Using Japan's post-bubble Nikkei as a technical guidebook, he has long forecast the Comp would experience three rally "waves" during this interlude rally period before the onset of the third stage of the bear market, beginning in the second quarter.

The Comp is currently "in the last bit of correction after the first wave" and prior to the second, he said, predicting the index will soon rally back to around 2850. But "you've got to wait until it turns up" before jumping on board.

Elsewhere, the strategist continues to believe the Dow Jones Industrial Average, which fell 0.6% to 10,730.88 today, remains poised for a near-term breakout that will bring it back above 11,000.

Hays didn't offer much guidance regarding what might be the fundamental catalyst for a near-term rally.

Bleier, for one, suggested some positive development in the government's antitrust case vs. Microsoft (MSFT Quote) could be the ticket. "If Microsoft is let off the hook, that will be the kind of stimulus/impetus the Nasdaq has been looking for," he said, noting investors' acknowledged the seriousness of the Justice Department's suit against the software giant roughly about the time the Nasdaq's peaked last year.

Another theory is that the next rally phase will be spurred by the Fed lowering rates prior to its March 20 meeting, perhaps as early as tomorrow. If the Consumer Price Index report proves weaker than the expected 0.3% overall and 0.2% in the core, the Fed may cut rates, Cantor Fitzgerald's Bill Meehan theorized on RealMoney.com this afternoon.

Having been burned once, I'm not going to predict the Fed won't cut intermeeting. That said, I think it would be a mistake for the Fed to do so because it would reinforce the notion that the central bank is targeting the stock market. Then again, I thought the first intermeeting cut was a mistake, largely for the same reason.

(For a GuruVision primer, check out this story.)