Hey, tech stocks: Don't just do something -- stand there!

The

Nasdaq Composite Index's

recently seasick action has investors playing hands-off when it comes to technology -- despite those dip-buying folks who seem forever ready to support the market, even with the Fed in the way.

Investors are taking a two-faced view of technology stocks. In a sense, the increasingly negative and shifting short-term view has been a detriment to those with a long-term view. Investors don't expect tech to maintain the kind of growth and produce the returns that the Comp did in 1998 and 1999.

But as sectors go, certain tech stocks (such as Internet-connectivity and networking companies) are still viewed as having the greatest potential for growth. Investors, however, are more wary on a short-term basis, due to increased volatility and day-to-day jitters about the aggressive

Federal Reserve. It's left managers sitting on the sidelines, expecting choppy trade for the next few months.

"I can see how

higher interest rates can contribute to some fund manager bearishness, but if you like to buy things and hold on, I wouldn't be panicking," said David Brady, senior portfolio manager at

Stein Roe & Farnham

. But "if you're going to trade stocks, you're not going to spend as much time figuring what the company is about ... those money managers have plenty of reason to be bearish on tech."

Merrill Lynch's

monthly fund manager survey, released today, finds investors to be bearish on technology for the first time since starting the monthly survey in mid-1996. Generally, technology is listed among the favorites of investors surveyed, but this time, they're bearish, with 12% counting tech among their most-favored sector, but 16% calling it a least-favorite.

This, after month after month of buying up technology stocks and retaining bullishness even through the market's skid in March. Trevor Greetham, global strategist at

Merrill Lynch

, admits the survey generally reflects short-term sentiment, and with fund managers aggressively selling technology now that riding momentum is no longer working, the shift isn't surprising.

The Trend Is Not Your Friend

Overall, the trading characteristics in the market haven't changed much since the frenzied end of last year -- but the trend has. Monthly turnover rates, which compares trading volume with the number of outstanding shares on the

New York Stock Exchange

, was 104% in March and 94% in April,

according to the NYSE. In the 1990s, annualized turnover was about 60%, implying longer holding periods of stocks then (when individuals exerted less influence).

Also, the volume of block trading has

decreased on the

Nasdaq Stock Market

. Block trading (trades of more than 10,000 shares) was nearly 43% of trading volume in 1994. For this year, through March, it was just 22%, which means more buyers and sellers affecting prices of a stock.

Taken together, both of these aspects contribute to frenzied markets. They're not a problem when the market is soaring. But when the trend moves against investors, it's a different story. And that short-term volatility is hurting investors' psyche when looking on a group of stocks that probably will show slower growth in the next couple of years.

"For lots of fund managers right now, it's not about making a lot of money, but preventing big losses," said Gary Kaltbaum, chief technical analyst at

J.W. Genesis

. "You have to recognize when the market is not in favor and you can't make a lot."

What you have, then, is low, low volume as investors raise cash and get defensive. With interest rates on the rise, defensive stocks such as consumer staples, commodities and health care are the names most often discussed by investors.

Now that the Fed just increased the

fed funds rate for a sixth time, to 6.5%, investors expect that in a slowed economy, technology spending will decrease, according to Greetham. The summer has historically been a slow time for technology stocks, also inhibiting investors.

When the interest-rate picture becomes a bit clearer over the next couple of months, and investors begin to look to tech leaders again, the market may regain a sense of strength, rather than continuing the range trade. Then, fund managers may regain some lost confidence.