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Is The Technology Sector Headed For Another Q2 Breakout?


  • The Technology sector is one of the hottest market sectors heading into 2018, led by Electronic Equipment, Telecommunications and Software stocks.
  • My quantitative and technical models indicate unusual cyclical patterns that look very positive for Tech stocks into April and beyond.
  • This article considers several of the top Technology ETFs and the top holdings that are delivering the highest returns.
  • Additionally, individual breakout stocks are selected for significant gains.
  • I fully anticipate that the stocks and funds mentioned in this article will outperform this year due to changes in tax law and the strong increase of investments evidenced in this sector.

From the Big Picture to Individual Stock Breakouts

This analysis starts with a 14-year chart of the Dow Jones US Computer Services Index shown below. This sub-sector of technology is one of many industries showing strong growth and a recent surge in volume over the past year. The technical indicators illustrated below also correspond to a potential breakout move in the coming month that could sustain through 2018.

(Source: StockCharts.com)

The technical aspects of the multi-year chart show a number of strongly positive indicators:

  • Relative Strength of the Index is positive and increasing with an RSI of 70.
  • The ADX 14 measure of higher highs growing larger than lower lows confirms a positive uptrend at a relatively low level for significant upside growth potential.
  • The average volume in this sector from 2017 to today is significantly higher than, if not more than double that of, previous levels shown in the Computer Services Index.

The Technology Select Sector SPDR ETF (XLK) tracks an index of S&P 500 technology stocks and can be viewed as a good proxy for the technology sector. With $20.58 billion under management, this is the largest ETFs concentrated on the technology sector. A seasonality performance chart of XLK for the past five years from 2013 shows a strong pattern of consistent performance from March through May of each year. Since 2013, the fund has gained in April 4 out of 5 years (80%), for an average +0.4%, and gained in every year in May (100%) by an average of 3.4% as shown below:

(Source: User generated from StockCharts.com)

The first half of the year performance shows particularly strong growth between February and May, usually with underperformance in June of each year since 2013. Compared to the S&P 500 over the past five years, XLK has performed extremely well each

This article was written by

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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