Tech is back! Tech is hot!

Wrong. Tech is fast becoming a bear trap.

Everyone is touting tech stocks, but don’t listen to them. Forget what the pundits are telling you about tech — there advice
isn’t worth a nickel.

I’ve got five reasons why you need to avoid tech stocks — unless you’re planning on shorting them, that is. Plus stay tuned, and I’ll also give you the names of three of the best tech stocks to short.

Next: Reason #1

Reason #1: No Recovery in Sight

The tech bulls all assume an economic recovery by year-end. Not gonna happen.

Consumer spending continues to contract, and that will forestall new business capital and IT spending.

Next: Reason #2

Reason #2:
PC Sales in the Dumps

PCs are the great driver behind many tech companies and stocks. Businesses purchase PCs for new employees, to replace worn out
equipment and to adopt new technology.

Well, for the most part, there’s not going to be any new employees through mid-2010. Companies are holding back on upgrading
older PCs that still function well enough or can be replaced by the PCs used by laid-off employees. And there’s no new technology
that companies are chomping at the bit for — and there hasn’t been for several years.

Next: Reason #3

Reason #3:
Consumers Not Buying

If the CEO of Wal-Mart (WMT), Mike Duke, says his customers are
stressed, you should believe him. The only consumer devices being bought in volume are smartphones and flat-panel TVs.

Consumer spending died and, if possible, is getting deader. And consumer product sales now determine the fortunes of many tech
companies.

Next: Reason #4

Reason #4:
Tech Stocks are Due for a Correction

Tech stocks are wildly overbought and due to correct — and this true for the entire market. The Nasdaq (NASD)
has been behaving poorly, even on up days, as traders take profits in anticipation of the end of this rally, which is a classic
bear market rally.

Don’t fall victim to the bear trap. Get 10 Rules
for Surviving This Bear Market.

Next: Reason #5

Reason #5:
As Goes Intel…

One word: Intel (INTC).

Intel said PC sales have hit bottom. But, in the same breath, they said they had no guidance going forward and no idea when
sales would rebound. Then they said they were cutting back — seriously cutting back — on capital spending. Not a great endorsement
for future growth.

And, as Intel goes, so goes most of tech.

Next: 3 Tech Stocks to Short

3 Tech Stocks to Short

By now I’ve hopefully convinced you that tech is not the place to be investing right now. But that doesn’t mean that money can’t
be made in tech. How? Well, by shorting the worst tech stocks, of course!

So where should you look?

Follow the big dog (the economy) and its puppies (demand for PCs and Intel).

I recommend shorting (through put
options) the following dogs:

Next: Tech Short #1

Tech Short #1:
Semiconductor HOLDRs (SMH)

The Semiconductor HOLDRs (SMH) is an exchange-traded
fund (ETF) that represents the chip industry.

SMH looks like it will head down for technical reasons, not to mention the deteriorating fundamentals of the underlying chip
companies.

Next: Tech Short #2

Tech Short #2:
Applied Materials (AMAT)

Take a long, hard look at Applied Materials (AMAT). This is the
granddaddy of semiconductor equipment companies, and in recent years has become a big player in the solar equipment business.
That business is now softening, which means its growth segment ain’t gonna grow that much for a bit.

Please, check the charts before buying puts on AMAT, but know that the underlying fundamentals are weak and weakening.

Next: Tech Short #3

Tech Short #3:
Palm (PALM)

I hate Palm (PALM) — not the people, but the unspeakable (and,
in my view, somewhat unethical) hype surrounding its new smartphone, the Pre, which should be hitting store shelves in July. A
board member and investor hyped it beyond belief, the stock spiked, and then Palm sold more than 80 million in new stock.

The Pre over the iPhone and the BlackBerry? Give me a break. That’s like RC Cola going head-to-head with Coke and Pepsi.

Check the charts and wait until it breaks a bit, and then look at puts. This $9 stock is worth a buck, no more than two.

More by Michael Shulman:

• 5 Short Side Investment Rules
• 10 Factors to Consider When Shorting Stocks
• What is a Short Option Position?
• 10 Reasons to Use ETFs When Trading Options

Free Report from Michael Shulman reveals how to get on the short-side of life and which market segments are the best places for a short side investment. Click here to download your FREE copy!