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Tech Stocks Rise from Housing's Ashes

Written By Brian Hicks

Posted September 27, 2007

The nation’s housing sector took yet another blow this morning as the most recent data on new home sales further revealed to the Street what it already knows–the bottom in housing is nowhere in sight. New home sales tumbled 8.3% in August from July, providing a stark sign that the mortgage crunch is aggravating an already painful housing slump.

As a result, new home sales fell to their lowest levels since June 2000. On a year over year basis, sales fell 22%.

More disturbing, though, was the dramatic drop in prices that accompanied the lack of sales. Median new home prices fell by 7.5% year over year, posting the biggest decline since 1970.

Prices quite simply fell off the cliff in what is certainly only the beginning of the decline now that the lenders have pulled in their ladders.

If you don’t believe me on that one, just check out what Hovnanian was up to recently as it put a complete fire sale on its bloated inventory.

$100K+ price cuts anyone? How would you like to be the guy that bought into one of those communities only a year go with what you thought was a great deal because you got the free finished basement? Talk about being under water.

In the bigger picture, however, that bit of troublesome news for the housing bulls–what’s left of them–was just simply piling on. That’s because by now it has become perfectly clear to anyone with an IQ greater than a grapefruit that housing is not just a little sick, but that the priest is clearly waiting in the hallway.

So while we wait for housing’s last rites to finally be read, the question of what’s next for investors arises–since we all know that risk capital always finds new home when it needs one.

That at least was the question on the minds of the folks who attended my talk on the state of the housing market at the Profit from the Peak conference in Philadelphia two weeks ago.

And while I can’t exactly tell you that I was one of the headliners–it was a peak oil conference, after all–I can tell you that what’s going on in the housing market was a hot topic, to say the least. That, of course, and the direction of the stock market.

(The CDs of that talk and the other great investment presentations found there are now available here.)

My answer on the markets kind of surprised them, I think. That’s because after spending the better part of an hour tearing down the housing market, they found out that I was bullish on the market in spite it of all. Not on housing, obviously, because that game is long over–but on tech.

Despite knowing what I do about housing, I also know that there is always a bull market somewhere, and this time around it’s definitely in tech stocks.

In fact, since that market plunge in February–caused not coincidentally by sub prime turmoil–tech stocks have absolutely led the markets higher as some of that risk capital that was tied up in the housing machine started to find a new home.

For instance, take a look chart of the First Trust NASDAQ-100-Tech Index (QTEC). It’s an exchange traded fund based on the NASDAQ 100. The fund’s top ten holdings are Apple Inc. (APPL), Applied Materials (AMAT), Citrix Systems (CTXS), Intel (INTC), Juniper Networks (JNPR), Lam Research (LRCX), Marvell Tech Group (MRVL), Nvidia Corp. (NVDA), Research in Motion (RIM.TO), and Sandisk (SNDK)–all big cap techs.

It’s traded considerably higher since it hit its recent low of $19.61 in March. In fact, it’s up 17% since then and is currently pushing its all time high of $23.58. Better yet, the index is up 46% since its lows in July 06.

Meanwhile the XHB has been in some serious pain. That’s the S &P Homebuilding SPDR. It’s down 45% since February, when the last grunts of the housing bulls were to be heard. Take a look:

The difference, of course, is like night and day. That’s why I think, despite all the surprises that will continue to come from the falling housing market, tech stocks will continue to power higher.

And why not? With those great balance sheets and not a whiff of sub-prime contagion, tech stocks are clearly one of the better plays on the growing global economy.

The good news is that it’s just getting started.

It’s time to catch a new ride, this time in tech.

Wishing you happiness, health, and wealth,

Steve Christ, Editor

By the Way: To find out more about how to play this undeniable trend in technology stocks, click here. The last five tech stocks that we  have added to our portfolio are up 31%,40%,77%,5% and 15%. Not bad considering that we added them just after the fourth of July.