The Invincible Nasdaq: Tech Investors Brush Off Compaq Woes

Only a similar blow-up from one of tech's big boys would shake things up, say traders.
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The irrationality in techland continues.

Compaq's

(CPQ)

earnings warning late Friday was expected to wreak havoc on the hyperventilating

Nasdaq Composite Index

Monday.

But after an early 2% drop, the index was around break-even as investors concluded bad news from the Houston-based PC giant simply didn't warrant a widespread selloff.

With a robust economy, steady inflation and the masterful

Alan Greenspan

in charge of monetary policy, only a few companies are seen as important enough to slow the market's climb with a mere earnings warning. And this morning's reaction suggests that Compaq is not among them: Though its stock was off 6 15/16, or 22%, at 24, its PC-related counterparts were off only mildly and some other tech stocks were moving higher.

The reality is that Compaq is no longer considered a flagship tech company, or one of a few that "mom and pop are looking at," says John Puricelli, a technology analyst and trader with

A.G. Edwards

. Puricelli says that if any of the top-tier companies announce similar shortfalls, then there will be trouble.

The anointed companies include

Intel

(INTC) - Get Report

,

Dell

(DELL) - Get Report

,

Microsoft

(MSFT) - Get Report

and

Cisco

(CSCO) - Get Report

. Negative surprises from these favorites will do significantly more damage, Puricelli said.

Investors had worried that a weak January and February for PC makers would spell trouble for technology stocks. But Dell, the boxmaking bedrock of the industry, last week eased those fears, saying it was seeing solid growth in all of its segments. Then on Friday, Compaq

warned that first-quarter earnings would be less than half of Wall Street's projections.

Seth Tobias, managing partner with

Circle T Partners

, says the market has not reacted strongly to the announcement because problems in the PC sector have been well publicized. In addition, he says, there has been a rotation out of technology-oriented names of late and into energy companies and financials that are more fairly valued.

That said, even the more seasoned analysts on Wall Street are a bit surprised by the market's ho-hum reaction. "What's it going to take to shake investors out of this ... utopia?" asks

PaineWebber

analyst Don Young. "I just don't know if anything will."

Most of the big-cap tech names were mildly lower at midday: Microsoft was off 1 3/4, or 1.9%, at 92 1/2 and Cisco was off fractionally at 117 3/16. Among stocks in the PC orbit, Intel was off 4 3/16, or 6.4%, at 61 1/4;

Hewlett-Packard

(HWP)

was off 3 11/16, or 5.3%, at 65 15/16; Dell was off 2 5/16, or 5.3%, at 41 1/4;

Sun Microsystems

(SUNW) - Get Report

was off 2 1/2, or 3.6%, at 67 3/4; and

IBM

(IBM) - Get Report

was off 4 7/16, or 2.4%, at 181 7/8.

And leading big-cap advancers on the Nasdaq were

Amazon.com

(AMZN) - Get Report

, up 1 5/8, or 1.9%, at 184 1/2, and

MCI WorldCom

(WCOM)

, up 1 3/32, or 1.2%, at 91 1/8.

Tobias sees Tuesday's earnings report from Intel as keying market direction. Tobias says that there has been talk in the market that Intel will hit its first-quarter earnings estimate of $1.10 a share but will "guide numbers down" for the second quarter. Such a move would be "a huge negative for the market," he says.

Compaq's situation is far more akin to that of

Oracle

(ORCL) - Get Report

, which last month beat earnings estimates but showed poor revenue growth. The market reacted much like it did today: Oracle shares fell but the rest of the market moved on.

Robert DeNiro would be proud of this market. "It can really take a hit," marvels one institutional money manager.