Isn't Tech Supposed to Rock Now?

 | Oct 10, 2012 | 2:27 PM EDT
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Whatever happened to seasonality? Whatever happened to the trading pattern that has made you money for ages? I am talking about the fourth-quarter tech trade, the one that allows you to take advantage of all of the tech that enterprise buys and the consumer buys.

You know, I don't like trades based on pure calendar superstition like "sell in May and go away," or "sell in October because we have crashed in October," or "buy in an election year because we've been up in an election year."

These all presume a steady set of fundamentals as if nothing's changed year over year, so with the same set of economic facts stocks, seasonally, should do the same things. That's nonsense. The facts differ all of the time.

But two things have always been certain about tech. One is that there is a holiday buying season where people buy consumer products that use a lot of flash memory, semiconductors, disk drives and glass screens. And the other is that companies have a lot of money allocated each year to tech and that money gets spent that year. That means if it hasn't been spent by the time of the fourth quarter it gets spent in that quarter.

These aren't unreliable ditties like "sell in May and go away." These are empirically demonstrated, rigorously analyzed trends that make too much sense to buck.

Except this year. First, the whole consumer tech world is in disarray. Sure we have gadgets galore being sold here. But consumer tech is global and there's a total slowdown in the global consumer spending world that we can't make up for. Plus, the consumer's faced with two choices, the Apple (AAPL) closed system and the open systems for everyone else. Guess what? They like the closed system. So tech seems to have gotten very zero sum.

The enterprise is even more convoluted. We have seen a gigantic shift away from internal hardware buys and toward the cloud. There is a reason why I have Red Hat (RHT) and (CRM) on each quarter. Those are companies that allow you to save on hardware costs while becoming leaner and more productive. The data is stored away in server farms. Each firm no longer needs its own giant tech infrastructure.

Plus, we have this bring-your-own-device world where individuals at companies are taking tech matters into their own hands, typically buying Apple products and convincing information technology departments to back away from companies like Dell (DELL) and the Hewlett-Packard (HPQ).

Plus, we have seen an amazing slowdown in telecommunications spend as those like Verizon (VZ) and AT&T (T) have built out their networks for now and don't need any more infrastructure.

These are all trends that are manifesting themselves right at the moment, when tech spending is supposed to be robust. These are trends that surface in Avnet (AVT), the tech-part supermarket, which has always been a solid part of the fall tech trade, or in Jabil (JBL), which, too, has been a bedrock fall selection.

I know I believe in this tech cycle. It's worked for years and years. But here it is October, right in the tech sweet spot, and it sure isn't happening.

Maybe it just won't happen at all. The result? Unless you have a very specific tech player that is taking share and taking names -- I am thinking Amazon (AMZN) and Google (GOOG) here -- it might not pay to play the tech trade. In fact, it looks like it has become the most deadly trade of all.

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