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Investors Missing A Very Bearish Sign In Tech?

Despite being an M&A hotspot, Dan Niles of Alpha One is scared of the tech sector. How come?

”It’s hard to ignore the 800 pound gorilla in the room,” Niles tell us, and according to Niles that’s Cisco .

As you may remember, last week when Cisco reported earnings they stunned the Street with a dismal revenue outlook which fell far short of expectations.

Also, the usually upbeat CEO John Chambers talked of "short-term challenges" in Europe and public sector spending, as well as weakness among its most important customer segment: service providers.

In the days since, the Street has come to view the outlook as a specific issue facing Cisco - punishing Cisco shares but not the sector broadly.

Niles thinks that's a mistake.

”That’s the bet Wall Street is making and I’m not sure I agree with it,” he says. “People are saying there’s nothing wrong with (tech stocks) don’t worry about them.”

He thinks investors are forgetting that Cisco “reports a month later than most other tech firms and the trouble they cited largely surfaced in October.” In other words, these same kinds of issues will emerge broadly during the next earnings period – when most other firms talk about October.

”The problems Cisco talked about are ones I think investors will have to be concerned with going forward when the rest of the tech sector reports,” he says.

To say “they saw a 48% drop in state and local government business – don’t worry about that. ”Or to say European orders were up 2% while revenue for the entire company was up 19% -- well forget about it” – those are bad assumptions.

"When you have big companies experiencing problems for reasons that seem logical don’t stick your head in the sand," he counsels.


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Trader disclosure: On November 15, 2010, the day this video was recorded, following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour owns (AAPL), (BAC), (POT); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Terranova owns (UPL), (C), (PEP), (OIH), (HES), (AXP), (GS), (FCX), (VRTS), (POT), (AAPL), (IBM), (DIS), (MCD)

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For Dan Niles
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