Point & Go Figure: Is Tech Over?
Hello tech stocks my old friend
Tech is over. I know because people tell me this about once a day. It's all about energy and raw materials these days, they say. Nobody cares about technology. They want energy stocks. Maybe some Google (GOOG) if they're one of those trading cowboys. But tech? Forget about it. It's over.
Of course, like everything else in life, when it comes to the stock market the biggest pile of money is sitting in the corner where the fewest people are looking. So, the more I hear that tech is over, the closer I look at that side of the market for ideas.
While the primary indicators I follow for the market continue to say we are operating in a negative context, there are areas that are showing relative outperformance that demand attention... and contrary to conventional wisdom, those areas are not energy, raw materials and metals.
On Friday morning last week I took a look at the CRB Index, which at that time was nearing a potentially significant trend violation. That trend change has now taken place:
Reuters Jefferies CRB Index (CR/Y)
So, the primary trend for the CRB Index has changed, suggesting a period of underperformance for commodities and raw materials.
Meanwhile, Energy and Materials stocks and ETFs are showing technical deterioration....
iShares Dow Jones U.S. Energy Sector (IYE)
The IYE has given a number of sell signals since October, a triple bottom break, followed by a double bottom break - a bearish overall setup called a "Bearish Catapult" breakdown.
Merrill Lynch Market Oil Service HOLDRs (OIH)
iShares Dow Jones U.S. Basic Materials (IYM)
While market participants focus on energy and materials stocks, however, the forgotten side of the market seems to be certain areas of technology. Despite the overall negative context of the broad market in general, certain tech areas so far are remaining firm... and in some cases poised for potentially significant breakouts. This is bullish action as positive technical developments in the face of a negative primary tide suggests these will be the strongest areas of the market when and if the tide turns back to positive.
iShares Goldman Sachs Technology Index (IGM)
Amex Technology Select SPDR (XLK)
Internet HOLDRs Trust (HHH)
Of course, with the primary market context negative, downside surprises should be expected. I remain bearish longer-term on the stock market, but recognize that within that primary bearish context there are potential pockets of bullish action that may occur. While certain areas of tech are outperforming the SPX, it remains to be seen whether that outperformance can translate into positive absolute returns, or simply relative returns that are not as negative as the risk implies for energy, materials and financials.
All charts courtesy Dorsey, Wright & Associates.
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