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Michael Gayed: Will Technology Lead the Next Leg Lower?

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If technology weakens, it could lead the market down in the next leg lower.

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It has become appallingly obvious that our technology has exceeded our humanity.
-Albert Einstein

Technology is one of the most important areas of the stock market to watch. It accounts for approximately 20% of the S&P 500 (SPX),  making it by far the biggest sector. Apple (AAPL) clearly gets the most headline attention as the largest and most high-profile name, but there are others that can influence market moves.

It used to be the case that if someone wanted to take an aggressive bet on equities, technology was the way to do it. However, the sector's role has not been well-defined in the context of inflation/deflation. There are times when during deflation pulses, technology actually outperforms, largely because of the market's perception that high cash levels on balance sheets actually benefit from falling prices. 

In a real deflation scare, however, revenue growth tends to slow down as companies pull back on upgrading their systems.

Recent market volatility, combined with declining bond yields and falling inflation expectations, has resulted in our equity sector ATAC Beta Rotation Fund (Ticker: BROTX) having no exposure to the sector. That will change when our risk triggers suggest an all-in move to cyclical sectors. 

However, when that moment comes, technology won't be overweight within that high-beta basket. Take a look below at the price ratio of the iShares Technology ETF (IYW) relative to the S&P 500 SPDR ETF (SPY). As a reminder, a rising price ratio means the numerator/IYW is outperforming (up more/down less) the denominator/SPY. A falling ratio means the opposite. Note the change in trend which may be underway.


Click to enlarge

If technology begins to weaken against the backdrop of continued volatility, then that weakness may lead the next leg lower for equities despite entering the seasonably favorable November to April period. With concerns growing over semiconductors and a slowdown in sales from a cyclical perspective, technology may not be the place for aggressive bets, regardless of whether the September-October correction is over.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The Fund's investment objectives, risks, charges, expenses and other information are described in the statutory prospectus, which must be read and considered carefully before investing.  You may download the statutory or summary prospectus or obtain a hard copy by calling 855-ATACFUND or visiting www.atacfund.com.  Please read the Prospectuses carefully before you invest.

Mutual fund investing involves risk. Principal loss is possible.  Because the Funds invest primarily in ETFs, they may invest a greater percentage of its assets in the securities of a single issuer and therefore is considered non-diversified.  If a Fund invests a greater percentage of its assets in the securities of a single issuer, its value may decline to a greater degree than if the fund held were a more diversified mutual fund.  The Funds are expected to have a high portfolio turnover ratio which has the potential to result in the realization by the Fund and distribution to shareholders of a greater amount of capital gains.  This means that investors will be likely to have a higher tax liability.  Because the Funds invest in Underlying ETFs an investor will indirectly bear the principal risks of the Underlying ETFs, including but not limited to, risks associated with investments in ETFs, large and smaller companies, real estate investment trusts, foreign securities, non-diversification, high yield bonds, fixed income investments, derivatives, leverage, short sales and commodities.  The Fund will bear its share of the fees and expenses of the underlying funds.  Shareholders will pay higher expenses than would be the case if making direct investments in the underlying funds.  The Beta Rotation Fund is new with no operating history and there can be no assurances that the fund will grow or maintain an economically viable size.

All investing involves risks. 

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

The fund as of 10/22/2014 does not invest in any of the following investments: IYW, and SPY. Fund holdings are subject to change and are not recommendations to buy or sell any security. Current and future holdings are subject to risk.
MA(4) = 4 week moving average

References to other securities should not to be interpreted as an offer of these securities.

ATAC Beta Rotation Fund is distributed by Quasar Distributors, LLC. No other products mentioned are distributed by Quasar Distributors, LLC.


Twitter: @pensionpartners
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No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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