Put this sector on your shopping list

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).

xlk long

 

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

XLK SHORT

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.

6 Comments

  • Hi Keith

    I’ve tried to register twice for your Seminar and nothing will go through…it keeps saying the link to the Money Show is broken…can you please post the place for the seminar, is it on line?

    Many thanks
    Arlene

    Reply
  • HEALTH CARE (XLV) SEEMS TO BE BE SO STRONG RIGHT NOW AND SO EXPENSIVE AS WELL. WOULD YOU BUY INTO THE SECTOR KNOWING THE RSI IS ALREADY IN OVERBOUGHT TERRITORY?

    P.S.: IS YOUR BOOK (SMARTBOUNCE) AVAILABLE ANYWHERE BESIDE AMAZON.COM?

    Reply
    • Jean-Pierre
      XLV is in an uptrend. Personally, I tend to buy stocks in uptrends after they touch the trendline and bounce off for a couple of days. The sector is already way back above its trendline after testing in early October. So, you could simply buy it — the trend is inarguable–but my style is to wait for a pullback–I’m just greedy that way!
      The book is also available at Chapters/Indigo online, as the stores don’t often carry it in their in-store inventory. Or you can order it directly from the publisher (http://www.bpsbooks.com/sideways-keith-g-richards/). Or, if you happen to reside near Markham Ontario, come by my presentation in late November–details are available on the ValueTrend website (www.valuetrend.ca)–I always bring copies to these events.

      Reply
  • Keith … i have no $US accounts, only Canadian but it seems sometimes all commentators quote all these neat $US ETFs and stocks … i cannot afford the exchange rate .. can you provide equivalent canadian stocks/ETF if there are any .. when referring to Tech or health care or whatever.. i expect there may not be any … thx and appreciate

    Reply
    • Bob–its all relative–the US has the best tech companies in the world, and the stocks will likely outperform – despite the currency. Unless you think the USD is going to crash–its meaningless what it costs in currency terms, because when you sell the stock, you will cash it in for a premium too. I look at any stock that has a 20% gain potential. So even if the USD falls a bit during the time I hold the stock, a 2-3% bearish move on the dollar will be offset by the larger capital gain on the stock
      The only time I don’t buy an overweight position in US stocks is in an environment of rising oil and commodity prices, which tends to drive the CDN $ up–this is certainly NOT the case now, nor is it likely in the near-term.

      Reply

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