In my last blog, I noted a few sectors that may begin to give way – as markets rotate into higher beta positions. I promised that I would begin –starting today – noting the sectors that are beginning to look attractive. I’d like to start with the tech sector.
Technology is the single favorite idea, or investment “theme” that we at ValueTrend have moved into. In fact, we’ve reduced our cash holdings considerably lately –a disproportionate allocation of which has gone into technology. We’ve purchased positions in the ETF that we’ll address today, along with individual technology stocks.
The big picture
A series of higher highs and higher lows on this weekly chart – dating back to late 2011 – suggests the uptrend is still in place. The break below the June low of $38/share was a little disconcerting, but larger support at $36 was untouched. The technology sector was hit pretty hard (-10%) during the September/October correction, as you can see on the chart. Interestingly, XLK – the SPDR technology ETF, found support right at the 200 day MA (red line).
The near-termed picture
The daily chart shows us the recovery from the extremely oversold levels on the technology index. Momentum indicators across the board hooked up. Money flow has been positive for 18 months, and the hiccup in both CMF (top pane) and accumulation/distribution cumulative line (bottom pane) in the recent correction has quickly corrected. Check the volume on both the daily and weekly charts during the recent recovery—a big spike during the first days of recovery. Now the index is about to test its old highs (thus, resistance) at around $40 – $40.50
Comparative relative strength vs. the S&P 500 is flat (middle pane). Seasonal tendencies are strong for this sector from October until February.
All in, technology looks to be a good place to start picking away at select bargains.
|Keith Richards, CMT, CIM, FCSI|
Portfolio Manager for ValueTrend Wealth Management
|The Great Rotation|
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