Tech Stocks Ride the Monolines

EA's bid for Take-Two was the major headline in tech-land Monday, but the really big news was Standard & Poor's reaffirmation of the triple-A credit ratings of MBIA and Ambac.

On the surface, there's no direct connection between the Nasdaq's near 1% advance Monday and the monoline bond insurers. But Monday's rally confirmed the message of Friday afternoon's reversal: MBIA and Ambac are the most important stocks in the market, not Google, or Apple or RIMM or Cisco or any other tech bellwether.

in a world where everything is connected, relief that major financial institutions are now less likely to take another round of massive write-downs of toxic securities buoyed spirits across the financial firmament. Such optimism, in conjunction with some technical factors conducive to a rally, helped lift stocks both directly and indirectly exposed to the mortgage-backed securities/housing market meltdown (never mind the 9-year low existing home sales data or latest cautious from DIY retailer Lowe's, which also rallied).

Whether that relief proves temporary or whether there's any legitimacy left to the rating process is immaterial -- at least for those focused on daily P&Ls, i.e. the short-term traders who are dominating market activity.

Only day traders, scalpers and nimble hedge fund-types like these kind of short-term gyrations and the more the market acts like a school of clown fish, the more active those short-term traders will become. In other words, this kind of near-term volatility can produce a self-reinforcing cycle – at least until the big institutions believe the market has fallen low enough to merit more serious buying.

Many are awaiting a retest of the Jan. 23 lows of 11,500 for the Dow, 1270 for the S&P and 2202 for the Nasdaq, which may yet occur. But the market is rarely so accommodating – at least not before frustrating the majority.