By Amy Baldwin
The Associated Press

When the Nasdaq Composite Index closed above 1,900 for the first time in 18 months this past week, it was a clear sign that investors are steadily regaining their confidence in the stock market.

Institutional investors such as those who manage mutual funds are particularly interested in owning and buying the technology stocks that dominate the Nasdaq, said Michael Murphy, head trader at Wachovia Securities in Baltimore. With only one week left in the third quarter, these investors can't afford to pass up high-tech in favor of cash for fear of disappointing shareholders with more modest returns.

But why tech and not blue chips? Technology, so beaten down during the bear market, has the most to gain as the economy strengthens, he said.

"If you are going to have a bull market, tech's going to take it," Murphy said.

Indeed, the collapse of the dot-com boom started Wall Street's descent into a three-year slump, and it was tech stocks that suffered the worst losses. But analysts are still advising caution, noting that companies' fundamentals might not be strong to justify high-tech's big gains.

"You have to be very careful about tech," said Gary Kaltbaum, president of Investors' Edge Partners, a money management firm in Orlando, Fla. "It is overbought and over-owned and too many people are talking about it after the move up."

Technical factors don't favor technology making more big moves in the near future, Kaltbaum said.

He could be right, considering that the Nasdaq has climbed nearly 50 percent since the market's March 11 lows, while the Dow Jones Industrial Average has risen about 28 percent and the Standard & Poor's 500 index has advanced about 29 percent.

So far this year, the Nasdaq is up nearly 43 percent. The Dow is up almost 16 percent; the S&P, up almost 18 percent.

"This is not necessarily confidence in ... the companies doing better, but the market doing better," Kaltbaum said.

Still, Murphy, the Wachovia trader, said tech firms are showing signs of real strengthening.

"You are starting to see good news in tech," he said. "These guys are starting to show good numbers and capital spending on tech is increasing."