Technology ETFs Pricing in 'Disappointment' This Earnings Season

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 |  Includes: FDN, IGM, IGN, IGV, IYY, MTK, RYT, XLK, XSD
by: Gary Gordon

Tech underperformed the broader U.S. market in Q1. And historically, the tech sector’s best months don’t typically arrive until Q4. Will Q2 earnings season be able to get the tech train back on track?

Probably not. The longest-term Microsoft (NASDAQ:MSFT) investors with the patience to clip the 3% dividend coupon may be satisfied. However, ”cap app” seekers may not be dancing in the streets.

So far, tech guidance has been decidedly mixed. Mobile device manufacturer Nokia (NYSE:NOK) warned that they’d miss earnings estimates. Disk-drive component maker Hutchinson (NASDAQ:HTCH) explained that Q2 shipments would dip. And the three-month average sales for semi chips dropped 1.1% from the prior month (Feb from Jan).

How has this been sitting with investors the week before earnings season? The winners are few and far between:

Tech Sector Performance Over Prior 5 Days
Approx 5-Day %
First Trust Internet (NYSEARCA:FDN) 3.9%
iShares S&P Software (NYSEARCA:IGV) 3.1%
iShares Total U.S. Market (NYSEARCA:IYY) 1.9%
iShares S&P Technology (NYSEARCA:IGM) 0.5%
SPDR Select Tech (NYSEARCA:XLK) 0.4%
Morgan Stanley Tech (NYSEARCA:MTK) 0.2%
Rydex Equal Weight Tech (NYSEARCA:RYT) -0.1%
iShares S&P Networking (NYSEARCA:IGN) -0.2%
S&P Semiconductor (NYSEARCA:XSD) -2.1%
Click to enlarge

Dot-com 2.0 investors might be rewarded. There are plenty of investors with their heads in the “cloud,” most of whom simply don’t care to remember the Amazonian valuations of Cisco (NASDAQ:CSCO), JDSU (JDSU) and Sun Micro in 1999. If you’re going to travel this path, use an exchange-traded standout like First Trust Internet (FDN) and arm yourself with a stop-loss limit order.

There’s little doubt that FDN is a fine way to capture Salesforce.com (NYSE:CRM), Google (NASDAQ:GOOG) and Netflix (NASDAQ:NFLX). Moreover, I’ve had great success helping investors profit from First Trust Internet (FDN) in the past. Nevertheless, high beta, high P/E assets often struggle in the “spring-becomes-summer” time. Don’t be surprised if the 2.0 wave stops and falters.

Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.