Could the Four Horsemen of Tech Return as the "Reining" Champs?

March 27, 2009 12:34 PM EDT

With yesterday's 3.9% surge in the Nasdaq, investors were stunned as the headline "Nasdaq turns positive year-to-date" crossed the wires. Positive?... huh? Does anyone besides Jim Simons or John Paulson actually remember what that means? Let's keep in mind that the Dow 30 is still down more than 11% since the beginning of '09...

While tech stocks were previously viewed as a more recession-resistant part of the economy, investor hopes were shattered at the end of last year when the sector felt just as much pain as the broader markets. And with many large-cap Nasdaq stocks still in negative territory for the year, investors are wondering where this strength is coming from. Could the fabled 'Four Horseman of Tech' be riding back into battle as the market-proclaimed victors?

One analyst firm thinks so, and at StreetInsider.com, we tend to agree. Analysts at Macro Risk Advisors point out that, while the "retired" Four Horseman of Tech -- Microsoft (Nasdaq: MSFT), Intel (Nasdaq: INTC), Dell (Nasdaq: DELL) and Cisco (Nasdaq: CSCO) -- are down 14%, on average, this year, the new Four Horsemen -- Apple (Nasdaq: AAPL), Amazon.com (Nasdaq: AMZN), Google (Nasdaq: GOOG) and Research In Motion (Nasdaq: RIMM) -- are up 24.6% year-to-date. The firm also notes that the old Horsemen currently account for 11.3% of the Nasdaq 100, strengthening their point that the Nasdaq's outsized gains could be coming from a very narrow segment of the tech sector.

MDR suggests that tech investors take advantage of this outperformance, as well as a recent drop in implied volatility, to pare back longs in order to swap into call options. The firm calls this a "prudent way to maintain a bullish view." With earnings from each of the new horsemen just over the horizon, MDR recommends buying April 55 calls in Research In Motion, and May options in Google, Apple and Amazon, as they report after April options are set to expire.

Interestingly, this thesis seems to be playing out today; compared to the Nasdaq, which is currently down about 1.75%, the new Four Horseman are outperforming and the old Horsemen are underperforming the index. Google, Amazon, Apple and RIM, averaged together, are down about 1.25%, while the old guys are down 1.9%.

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