Are Tech Companies Benefiting From The Weak Dollar?

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Merrill Lynch analysts held an unusual bull-bear debate on tech stocks Tuesday.

Richard McCabe, Merrill’s chief technical analyst, said tech stocks could rally 50% from current levels in the coming months.

But Merrill technology analyst Steven Milunovich has no plans to go along for the ride.

Milunovich said he is keeping tech stocks at a market weighting because the current rally has “little fundamental justification.” Because the tech sector gets more than 50% of its revenues from overseas, Milunovich said, this year’s improvement in technology earnings is more the result of a favorable currency translation caused by the sharp decline in the U.S. dollar relative to other currencies. Overseas customers’ newfound ability to buy more for less is “masking weakness in demand,” he said.

Given the debate at Merrill, investors didn’t know what to make of tech stocks on Tuesday, sending them higher and then lower, only to finish unchanged. The broader market did the same, as investors were unnerved by new lows in the dollar and bond yields, renewed terrorist threats, and the appearance of “Mad Cow Disease” in Canada. Better than expected results from Home Depot helped.

The Nasdaq slipped 1 to 1491, the S&P 500 lost 1 to 919, and the Dow slipped 2 to 8491. Volume rose to 1.5 billion shares on the NYSE, and 1.7 billion on the Nasdaq. Advancers led 18-14 on the NYSE, but decliners led 16-14 on the Nasdaq. Downside volume was 54% on the NYSE, and 61% on the Nasdaq. New highs-new lows were 185-13 on the NYSE, and 84-8 on the Nasdaq.

After the close, HP surged after beating estimates and reaffirming guidance.

During the day, Agilent rose 3.4% after matching estimates and reaffirming guidance.

iVillage surged 10% on a partnership with Drugstore.com to sell sex products.

eBay rose 1.2% after launching a rewards program.

IBM , down 0.8%, rolled out its first products from the acquisition of Rational Software.

SBC rose 0.1% on WiFi plans.

Cisco gained 0.3% on a security push.

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