Market Insider

Strategists See Technology Gains Continuing

Google Nexus 7 tablet.
Tomohiro Ohsumi | Bloomberg | Getty Images

As the stock market set new records this week, technology has been the top performing sector, and some Wall Street strategists argue it will continue moving higher from here.

Investors bought all types of technology stocks Wednesday, sending the Nasdaq to a new 12-year high. Meanwhile, in the , technology proved the best performing sector of the 10 industry groups, racking up a gain of 1.8 percent. Leaders included Baidu and Micron Technology.

For the year, tech is the second worst performer, up just 4.7 percent, but it was the best performer this week so far, up 3 percent.

But a negative late day report on PC sales could temporarily end the tech party for some stocks. Personal computer sales plunged 14 percent in the first quarter, the steepest decline in two decades, as tablets continue to grab share, according to International Data Corp.

Intel, Microsoft and Hewlett Packard all fell sharply in after hours trading. The 14 percent drop in PC sales to 76.3 million units was the largest since International Data Corp started publishing sales numbers in 1994. It highlights the industry's transition away from desktops to a new era of smaller devices, and puts the spotlight on Microsoft's Windows 8, which has not been embraced by consumers.

Thomas Lee, JP Morgan's Chief U.S. Equity Strategist, told CNBC earlier that he expects technology to outperform in the second quarter. Among his reasons for optimism: the sector appears attractively valued with a price-to-earnings ratio at the lowest level since 2002.

At the same time, Lee notes that bearishness in the sector is rampant with short interest at the highest level since 2006. This tends to be a contrarian indicator, he says, reflecting deep pessimism towards a sector.

Andrew Burkly, Oppenheimer's Head of Institutional Portfolio Strategy, is similarly bullish on technology. He calls the sector "unequivocally favorable." One reason, Burkly tells CNBC: analysts became increasingly downbeat on the technology sector heading into this quarter.

Now, he says, the bar for the sector is set low enough for companies to beat earnings expectations. Two names that should do just that, he says: Micron Technology and Texas Instruments.

Not everybody is so bullish. Katie Stockton, MKM Partners Chief Market Technician notes the breakout in the Nasdaq 100. However, Stockton also cautions that the last three breakouts led to sideways price action. For that reason, the technician says she remains near term cautious.

Bill Strazzullo, Bell Curve Trading Chief Market Strategist says that an investor should "buy strength always."

Therefore, he would want to be long the Dow, the S&P 500 and then the Nasdaq 100. "The Nasdaq 100 has been the laggard of the bunch," he says. "A large part of that is Apple. And, if you look at Apple technically, that's not ready to turn anytime soon."