Technology ended last week 12.6% undervalued according to my models, making it the cheapest sector in the market. In second place was consumer durables at 5.5% undervalued. Overvalued sectors include basic industry at 5.5%, energy at 8.5% and public utilities at 5.2%. Comparing valuations suggests that investors should continue to rotate into technology stocks.

This week, we have a few big hitters reporting earnings in the tech sector.

Cisco Systems ( CSCO) reports after the close Wednesday with an expected EPS of 24 cents. Three months ago, Cisco warned that it wouldn't meet prior guidance for the current quarter. I have reasons to believe that Cisco will beat the consensus this time.

Cisco should report increased demand for its routers from telecom providers that are upgrading their networks. Look for solid growth in VoIP networking with advanced security features.

My model shows Cisco 21.5% undervalued, with fair value at $22.84. The weekly chart profile would shift to positive on a close this week above its five-week modified moving average of $17.59. I see monthly pivots at $18.23 and $18.85, with potential upside to my semiannual and quarterly pivots at $18.99 and $20.79.

One of the stronger semiconductor companies, Nvidia ( NVDA), also will report after the close Wednesday with an expected EPS of 36 cents. Nvidia shares have traded higher over the past three months, raising the bar for the current quarter.

Despite the chipmaker's rise, it's still 13.7% undervalued, with fair value at $39.58. The weekly chart profile is neutral with declining 12x3 weekly slow stochastic, but with last week's close above the five-week MMA at $32.71.

If Nvidia remains between my monthly and quarterly pivots at $33.54 and $34.52, the reaction to the earnings report is likely to be a coin flip, particularly with the neutral weekly profile. It thus makes sense to wait for the earnings report rather than take the risk of a long or a short before the release. On a negative reaction to earnings, there is risk to my monthly value level at $28.48, at which point investors should add to longs. On a positive reaction to earnings, there is the possibility of another new 52-week high, but investors should reduce holdings on strength to my semiannual risky level at $41.14.

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