Technology, as a sector, has been hot and cold during the move off the August lows. The primary reason is the lack of unity in the sub-sectors leading the index higher. Each one has taken i’s turn at being an anchor and/or leader for the broad sector overall. The initial leadership came from software starting the move higher two weeks prior to the others following along. The technology sector made a move past the April high this week and it warrants a look at what is leading and where the potential opportunities lie.
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Software (IGV, iShares Software Index ETF) has exerted new leadership breaking to a new 52 week high. In fact the fund broke above the September 2007 high. The initial attempt in September was met with some selling and after a four week test pushed higher this week. The weekly chart below shows the move higher. There is more upside in the sector based on the technical breakout and fundamentally the underlying stocks remain strong. Worth adding to your watch list for potential play.
Networking (IGN, iShares Networking Index ETF) is poised to break through resistance at the $30.75 mark. The sector has been more volatile short term, but the rewards have been worthwhile. Like software, networking pulled back to test the move higher off the August lows and is now attempting to break higher. A move through the $30.75 mark would be a positive sign for a continuation of the uptrend and potential opportunity to add to positions or establish one.
Semiconductors (SOXX, iShares Semiconductor Index ETF) has been the biggest anchor on the broad sector. The concerns over PC sales and inventory have been talked up constantly by analysts over the last three months. However, the initial look at earnings shows no excessive inventory buildup and margins have held up well due to strong demand in the business sector. The sector continues to push against resistance at the $49 level. A break above this mark would be a positive for semiconductors and the technology sector overall. Add to your watch list.
Internet (FDN, First Trust Internet Index ETF) broke too from the consolidation pattern in September and hasn’t looked back. The sector continues to benefit from positive earnings data from Google (GOOG), Yahoo (YHOO), and others the past couple of weeks. The move above $30.75 continued the uptrend. No fundamental or technical reason to believe the upside will stop anytime soon.
Digging into the sector and looking for the leadership may provide opportunities you can otherwise miss. ETFs give investors a unique way of approaching this style of sector investing. If you want to find the individual stocks leading each sector simply scan through the holdings in the leading ETFs. Following the leaders in a leading sector is easier than looking for the one leader in the entire universe of stocks.
Technology as a sector is ready to set the pace to lead the broader market indexes higher as it eclipses the April high. This leadership will be important if the broad markets are to move higher and sustain the uptrend and play off the August low. Remember to maintain a disciplined approach to putting your money at risk. Always define your entry, your exit or stop and your target, before you invest.
Disclaimer: Jim Farrish is the Founder and Editor of SectorExchange.com and TheETFexchange.com as well as the CEO of Money Strategies, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.