Stocks that are involved in the development of new technologies fall into this category. This can involve both hardware and software firms. Electronics, computers, services that develop new software, and periphery businesses all fall under the heading of technology stocks. Technology is being used increasingly in all sectors of the economy, which is why this sector is a growing field. New developments in hardware and software are being made every day and innovation continues to enhance our society.

Not even a month has passed since I wrote the article, Can New Yahoo! CEO Deliver on Lofty Promises?, and the company’s CEO has left under a dark cloud. Since that time, now former CEO Scott Thompson has been discovered to have allegedly lied on his resume (although he says it’s just an error) about having a bachelor’s degree in computer science. This alleged error forced him out, but the long-term problems at Yahoo! Inc. (NASDAQ/YHOO) regarding its corporate earnings still exist.

This hasn’t been the only change, as the landscape for technology stocks continues to evolve. As I mentioned previously, Yahoo!’s North American division is essentially trading for nothing. Most of the value of Yahoo! USA is built on cash and its stake in Alibaba and Yahoo! Japan. Yahoo! has now entered an agreement that will see up to half of its stake in Alibaba sold for $7.1 billion. After taxes, Yahoo! expects to net approximately $4.2 billion and $800.00 in preferred Alibaba stock.

While the stock did move up initially, it has since fallen back. This is because investors know that technology stocks are built on innovation. This deal, while it’s great to finally see some monetization of an asset that was just sitting there, has done nothing to improve the core corporate earnings of the company. Technology stocks need to be on the cutting edge, the front line of new ideas. I can’t remember the last time I talked to someone who was excited about anything Yahoo!’s U.S. division has done.

Chart courtesy of www.StockCharts.com

While the move up in recent days was nice, as you can see from this chart, the stock is stuck in a tight range. The company did authorize an increase in its share repurchase program by $5.0 billion, so there is some support. An investor might look at this stock as an option, hoping that more pieces are sold off to other technology stocks and wishing for a break above the upper resistance level. But, generally speaking, wishing and hoping are not good friends for investors. As can be seen by the circles, there is no momentum being built up at all, while other technology stocks are flying around at much faster speeds. Yahoo! appears to be dead money, with a lack of strategy for increasing corporate earnings.

Once again, we have in Yahoo! a company that has declining revenue, a questionable corporate earnings growth strategy, and heavy competition from technology stocks such as Google Inc. (NASDAQ/GOOG) and Facebook, Inc. (NASDAQ/FB). With technology stocks like Google and Facebook as competitors that can out-muscle and outspend Yahoo!, as an investor I would be hoping for a sale of the entire company. The pieces are worth more than the whole. TSF2RSBXVB55

Technology stocks are in a constant battle for the wallets of consumers in the retail sector. The ecosystem built by Apple Inc. (NASDAQ/AAPL) through its “iOS” (operating system) has been a huge favorite with consumers in the retail sector. This uniform operating system is important for technology stocks, as it provides a consistent experience for consumers. Since the retail sector is so finicky, this consistent experience has generated a lot of support for Apple’s products.

More control over an operating system is important for technology stocks. This allows them to update the software and implement new features as they want, not the whims of other companies. This is what Google Inc. (NASDAQ/GOOG) is attempting to do with its new strategy regarding its “Android” operating system. Previously only one handset-maker had early access to the Android software. Google will now work with several handset-makers to release the same operating system on multiple devices. This synchronization of uniform software experiences should help the firm in the retail sector.

This attempt to offer the best operating system all at once is also an effort to gain more market share in the tablet space that Apple is dominating. Technology stocks tend to follow one another when they see something working. The dominance in the retail sector by Apple is bound to bring more competitors that will emulate what that firm is doing. Google already is making progress in other parts of the business, as I outlined in the article, Can Google Overcome Potential Pitfalls?

Chart courtesy of www.StockCharts.com

Technology stocks have had a strong move from the lows last fall. Not all technology stocks are alike, of course, so studying the chart of each one gives you a better picture of what the investor sentiment is. Following the wide range from the October low until the peak in early 2012, the stock has been forming a giant wedge. This is a sign that neither the bulls nor bears are in control, but at some point one side will become exhausted and the next leg will begin. One positive sign is that technology stocks and the market overall have sold off quite hard recently, but Google has moved up very strongly. Anytime a stock moves against its market sector, this is quite significant to other technology stocks. The upper bar represents resistance and, if Google can exceed this level, it would be a very positive sign.

I think a lot of positive momentum has been building due to the initial public offering (IPO) of Facebook, Inc. (NASDAQ/FB). Many investors compare technology stocks to each other. When comparing the valuation of technology stocks, investors are looking at Google against Facebook, it’s quite apparent that: a) Google is very cheap; b) Facebook is very expensive; or c) a combination of both. Frankly, at current valuations, Google is far cheaper than Facebook and I think that’s what’s been pushing up the stock.

The stock market risk is high right now. Maybe you should take a vacation from investing.

As an investor, you should be aware that the six-month period from May to October has been historically the worst-performing months for stocks, according to the Stock Trader’s Almanac. And so far, this stock market risk and historical pattern appears to be staying true to form.

The charts continue to be bearish. I said this in March and in April. I had sensed some near-term topping action several weeks back, as the stock market risk intensified after several attempts to move higher failed to be sustainable. For instance, the S&P 500 at 1,400. Moreover, the lack of volume on up days has been a major red herring and stock market risk for the buy side—indicating a lack of mass market interest.

The key stock indices have been devoid of any momentum or signs of sustained buying interest—down in the red over the past five days and month.

And, while stocks continue to hold in positive territory for 2012, the key stock indices are in the red since the end of March below their respective 50-day moving averages. Technology stocks, which fared the best this year, had been up over 18% in March, but have seen gains dwindle down to just over 11% on higher stock market risk. The NASDAQ is down 6.11% since the end of the first quarter, only trailing the 6.27% market correction in the Russell 2000.

The overall Relative Strength is weak, indicating that more weakness may be in the works or the upside gains may be limited, but watch for some oversold buying support. The breach of the 50-day moving average was bearish and points to higher stock market risk. Continued weakness could trigger additional selling and drive the key stock indices to test their respective 200-day moving averages.

The underlying strength as indicated by the advance-decline line for both the NYSE and NASDAQ has been trending lower since the start of May—indicating a loss of momentum. The following chart of the NASDAQ Advance-Decline reflects the weakening position and stock market risk.

Chart courtesy of www.StockCharts.com

The fragility and stock market risk on the charts are deserved in my view.

China and the eurozone remain major areas of stock market risk, which I had previously discussed in Global Market Risk: Is it Improving?

It appears that Greece may fall out of the eurozone and euro, as I have said in my past commentaries. The reality is that Greece is a weak player and it will take decades likely for the country to pull out of its mess. In fact, it could even worsen if the tough austerity programs fail to deliver debt cuts and cost control. Germany, which is fighting its own GDP growth issues, is not interested in funding anymore funds to Greece and clearly wants to focus on its own economy.

And then there’s Spain with its rising bond yields. The 10-year auction showed yields of 6.22%, which are not sustainable for Spain and its troubled debt and muted growth. The high yields are an indication of potential problems down the road.

Italy 10-year bonds are yielding 5.75%.

Note the pattern here?

What about the eroding situation in China? While the new rich Chinese from the mainland flock into Hong Kong and buy expensive goods, China may be a time bomb.

Filings from Wind Information indicate that around 45% of China companies listed on the Shanghai and Shenzhen stock exchanges provided weak forecasts for the first half. In my view, this is a real and valid concern that needs to be monitored.

The warning signs are there as far as the stock market risk, but I hope it’s not the perfect storm!

Google Inc. (NASDAQ/GOOG) is one of the most unique technology stocks. There are many technology stocks that try to rival Google. Google sets itself apart from other technology stocks through innovation as a key investment strategy. But this desire to expand too far has led to some mistakes. While many investors believe Google to be a pure marketing company, it has expanded its investment strategy to include the retail sector.

The retail sector is a slightly different animal for Google and technology stocks need to adapt their methods for that sector.

Google has recently announced that it will be selling tablets directly to consumers, along the same lines as Apple Inc. (NASDAQ/AAPL). Technology stocks will tend to copy each other once they see a firm has been successful with an investment strategy. The tablet market is one in which Google is falling behind, as Apple currently holds approximately 73% of the market share, according to industry research firm Gartner Inc. In addition to Apple, Amazon.com, Inc. (NASDAQ/AMZN) also sells a tablet, for the lower end of the retail sector, which funny enough runs off of Google’s “Android” operating system.

The success of Amazon’s tablet, the “Kindle Fire,” is a problem for Google, as other firms decide to build their platform on top of the Android operating system. This will cause more fragmentation in the retail sector, resulting in Google losing control of its operating system. The advantage of Google’s search engine is that it controls and can keep track of all the searches that are occurring, mining this data for marketing purposes. This data is worth billions of dollars. Once another company builds its system on top of Android, Google does not have access to this information. Amazon collects and stores the data from the Kindle Fire, not Google.

The retail sector is a tricky investment strategy for many firms, including technology stocks. The last attempt by Google to try to sell to the retail sector directly ended up in poor results with its “Nexus” phone. The new tablet to be sold directly the retail sector this time should work somewhat better. The main problem with the investment strategy of selling a phone online directly to the retail sector is having deals with cell phone carriers across different locations and countries. This won’t be an issue for tablet users, as many forgo data plans and primarily use Wi-Fi.

Google just announced that it is adding a cloud storage service to compete with other technology stocks. I can see an advantage that Google might have over other technology stocks, as its understanding of data search and storage is most likely at the pinnacle of the industry. The main problem that I see with all of these plans is a lack of a complete ecosystem tied together, as compared to other technology stocks like Apple and its “iOS.”

The really interesting information comes from Google itself, as it reported the percentage of users running each version of Android. According to Google, only 2.9% of Android devices are using the latest operating system. Over 86% of Android users are using old software, without the latest bells and whistles. Either the devices can’t get upgraded to the new software, or consumers aren’t buying the newest devices. Either way, it’s not a good sign for Google.

When developers build applications (apps), they assume the latest operating system is in use. As we all know, consumers want tons of apps to play with. Without the apps, the device is useless. A perfect example is Research In Motion Limited. (NASDAQ/RIMM), as I wrote in my article, Beginning of the End for RIM? Now, let me be clear; I am not comparing Google with RIM. Google is far and away a better company than RIM. I’m only suggesting that Google needs to pay careful attention to the retail sector and formulate an investment strategy that makes sense for the long term. With the brilliant minds at work there, I certainly would not bet against the company. With the stock trading at a forward price-to-earnings ratio of just over 12, the valuation makes a compelling case; however, I would wait to see what the reaction in the retail sector is to these products and services.

In the old days, Internet-related stocks were famous for not generating corporate earnings. New technology stocks that embrace the Internet, tradition retailing and mobile all together are able to generate large amounts of corporate earnings. The real secret is to have Internet-related stocks that embrace both some of the traditional aspects of business along with the new technology aspects to combine together and generate strong growth levels for corporate earnings.

Technology stocks are no different from other industries; innovation drives corporate earnings. Internet-related stocks have heavy competition to deal with and therefore innovation is even more important. The latest quarterly corporate earnings release of eBay Inc. (NASDAQ/EBAY) shows some interesting insights. eBay is not the same firm that you remember from several years ago.

eBay’s quarterly release showed that the biggest growth was in its subsidiary PayPal, with revenue increasing 32% in the first quarter for a total of $1.31 billion. The growth in PayPal is expanding from just traditional eBay transactions. New business venues include having a card reader for mobile phones that can accept credit card payments. PayPal also teams with The Home Depot, Inc. (NYSE/HD) to provide terminals for checking out merchandise. This innovation is certainly driving corporate earnings, and other Internet-related stocks should take notes and learn from one of the leaders in this sector.

In a brilliant move that is driving corporate earnings, PayPal is also benefiting from the current low-interest-rate environment, by allowing customers to pay in installments. While PayPal can borrow at the low corporate rate, it then can charge a higher rate to customers and make money off the spread. eBay itself is drastically changing, away from the auction format where it was a massive online garage sale, to a fixed format, adding a more business-like approach to the retail environment. eBay is also moving fast to develop online mobile technology for PayPal, as volume will surge 75% this year alone for a total amount of volume exceeding $7.0 billion.

Chart courtesy of www.StockCharts.com

All of this sounds good on the surface and I think that, when looking at Internet-related stocks, eBay is certainly one of the leaders in coming up with new and innovative ways to drive corporate earnings. However, the estimates for eBay’s future corporate earnings look very dull, with revenue guidance below previous estimates and forecasts for corporate earnings at $0.53-$0.55 a share, slightly below the current quarter’s corporate earnings of $0.55 per share. The consumer slowing and eBay is taking notice, assuming no real corporate earnings growth for the second quarter.

Trading at approximately 16 times this year’s corporate earnings, I certainly would not be buying the shares at this level. While I do love technology stocks and Internet-related stocks specifically, since I don’t see a large amount of corporate earnings growth for this year and a price-earnings ratio that isn’t very cheap, I can’t recommend buying eBay at this point.

I’m more interested in the potential for eBay to spin off PayPal over the next year or two. That portion of the company could generate strong earnings growth for a number of years if it were to be independent, so it could attain more business with other Internet-related stocks like Amazon.com, Inc. (NASDAQ/AMZN). Technology stocks offer a great opportunity to invest in Internet-related stocks that can generate high levels of earnings growth, but you must pay attention to the price paid and patiently wait for the right opportunity.