The average technology fund gained 5.1% in the five days through yesterday on optimism of a rebound in earnings and the economy. But that was before
plunged as much as 11% today after reporting a 29% decline in profit.
Microsoft was hit with a double whammy in the second quarter. As the economy shrank, demand for Web site advertising weakened and the price of banner ads slipped. Also, cash-strapped consumers and businesses held off purchases of new PCs in advance of a new version of the Windows operating system slated for October delivery.
The best-performing fund,
Direxion Daily Technology Bull 3X Shares
, returned 15% in the five trading days under review. The fund is 300% leveraged to the daily performance of the Russell 1000 Technology Index whose key members include Microsoft,
International Business Machines
, up 4.6%;
, up 7%; and
IBM is launching a secured, Web-based file-backup service throughout Europe called Vaulten. And Apple is reluctantly benefiting from a rival device maker, as
updated its Palm Pre software to allow downloading of songs from Apple's iTunes.
The second-best performing fund,
Ultra Semiconductor ProShares
, 200% leveraged to stocks in the Dow Jones U.S. Semiconductor Index, jumped 12%. The largest percentage gainers of this group include pops of 27% in
, 25% in
and 15% in
MEMC Electronic Materials
. All three of those companies beat earnings expectations this week.
The worst-performing technology funds this week all short the sector with 200% negative leverage. The largest declines were minus 13% in
Rydex Inverse 2X S&P Select Sector Technology ETF
, minus 11% in
ProShares UltraShort Semiconductors
, minus 9.7% in
ProShares UltraShort Telecommunications
and minus 9.3% in
ProShares UltraShort Technology
The disappointing quarter by Microsoft, knocking the technology sector down a peg, presents a potential buy-on-the-dip opportunity if the economy continues to recover through the fourth quarter and into next year.
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Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.