Tech Inline With Historical Trends: Time To Sell?

2007 took off out of the gates with a bang, especially if you owned tech. With the first few weeks of trading behind us, many investors may be surprised to learn this year has been inline with recent trends for investing in tech over the first few weeks of the year. If that’s the case, the question now is: will the next few weeks continue to match recent historical trends?

The table below gives the average weekly return from the end of the previous year to the close on Friday of each of the respective weeks for the S&P Technology ETF (XLK) from 2001 to 2006 (six years):

The trend seems pretty clear: tech has a nice little run up over the first few weeks of January and then begins to sell off by the end of the month. Two thirds of the time the XLK ended lower eight weeks from the beginning of the year than it was four weeks from the beginning of the year, with an average drop of 5.39% week four to week eight over the test period.

As with any historical trend, this should be looked at as anecdotal information in the context of the fundamentals of the markets. Although this year the fundamentals again seem to be supporting the trend of late January tech sell off. The tech run up seems to be a priced for perfection run up, with investors sorely disappointed with anything other than a rosy 2007 outlook, as experienced by Apple (AAPL) last week after beating numbers but selling off after mundane 2007 guidance.

After being trounced the first few weeks of the year, energy stocks showed some signs of life at the end of last week perhaps signaling a rotation out of tech back into tangibles. Rather than repeat my view of why oil stocks may be due for a rebound I will direct you to last week's piece for further reading on the topic. The bottom line is, whether it’s into energy stocks or cash, tech weighted investors might find some value in taking some money off the table over the coming week.