Tech Sector Holds Course

The second quarter of 2005 begins with my proprietary models showing the technology sector 18.4% undervalued, and that is remarkable in that the only other sector that is undervalued is health care, which appears 7.3% below value. Within my technology focus areas, computers stand at 13.5% undervalued, semiconductors at 25.5% undervalued and software 20.6% undervalued.

Among the computer stocks I currently focus on, Hewlett-Packard (HPQ) continues to have the best screens from my proprietary models, with Apple Computer (AAPL) showing the most downside risk.

Since March 1, when I wrote bearishly on Apple's outlook, its stock has fallen 7.1% and Hewlett-Packard has risen 5.5%.

Updating my screens on these two stocks, Apple is currently overvalued by 54.7%, with a weekly chart pattern that shifts to negative on a close this week below the five-week modified moving average at $40.80. A trade to that level would indicate risk to the chart support at $31. Independent industry sources tell me that sales of Apple's iPod are softening as inventory appears to be outpacing demand, and the lag of a screen on the iPod shuffle is disappointing consumers. The Mac Mini was going to take sales away from other PC manufacturers given the hype of the iPod, but that is not happening.

Hewlett-Packard, though, is undervalued by 31.6%, with a positive weekly chart profile at Friday's close above the five-week modified moving average at $20.55. The currently superior profile for HPQ should be monitored as investors assess the new CEO, Mark Hurd.

Semiconductor Values Stand In Place

When looking for leadership at the outset of the year, I focused on the Philadelphia Stock Exchange Semiconductor Index (SOX) in the first quarter, looking for leadership from chips, but the SOX could not sustain a trend above its 200-week moving average.

Intel (INTC) and Texas Instruments (TXN) were my stocks of choice and their screens remain favorable today.