Hot Money Seeks Tech

The past two days have embodied the action of early 2007 -- dramatic swings up and down for energy and technology stocks. Tuesday was all about commodities and related stocks. Wednesday the focus was primarily on tech stocks, which helped push the Dow Jones Industrial Average to an all-time closing high.

The "out of energy and into tech" trade and its mirror image are occurring because these two sectors provide the volatility that short-term traders crave and then perpetuate. The issue is that traditional high-risk, high-reward sectors like junks bonds and emerging markets have been thoroughly picked over. Emerging markets have averaged 30% to 40% returns over the past four years, while risk premiums in the high-yield market are hitting record tight levels this week.

"That's the story," says Randy Diamond, trader at Miller Tabak. "The fear [about the economy] is not there, so you don't get movement in the typically risky spots. It's so passe. The opportunities are in the asset classes that provide more volatility" -- which in the current environment means commodities and high-beta stocks.

It was a big pushback into technology stocks that drove the major averages Wednesday. The Dow reached a new closing high, up 0.7% at 12,621.77. The Nasdaq Composite surged 1.4% to 2466.28, and the S&P 500 closed up 0.9% at 1440.13.