Skip to main content

The season for strength in the U.S. technology sector is approaching.

From Oct. 9 to Feb. 15, the S&P Technology Index averaged a gain of 10.2 per cent during the past 20 periods. Chances for another successful seasonal trade this year are above average.

Several recurring events influence the period of seasonal strength, including:

- Sales of new consumer electronic products accelerate during the Christmas season, notably smart phone sales;

- Technology managers for major companies rush to top up budgeted equipment purchases before the end of the year and start to purchase new budgeted items for the following year.

- Investors also anticipate the introduction of new products launched at the annual Las Vegas consumer electronics show.

As investors digest the good news when the seasonally strong fourth quarter reports are released and annual meetings are held in January and February, the peak in the sector typically becomes apparent.

What about this year?

Events are promising: The iPhone cycle is in top gear with launch of Apple's new iPhone and iPad products. Computer and computer peripheral equipment wholesale sales are running slightly above average through the end of July, bucking a trend of lagging performance evident in other areas of the economy.

On the charts, the sector already is showing signs of strength. The S&P 500 Technology Sector Index recently bounced from long term support near 610 and is presently outperforming relative to the S&P 500 Index. Short-term momentum indicators are curling higher.

The chart below shows performance by the sector during the past four periods of seasonal strength.

Desktop users click on image to enlarge

The easiest way to invest in the sector is to own Exchange Traded Funds.

A wide variety of technology ETFs are available. The most actively traded technology ETF is the Technology Select Sector SPDR Fund (XLK-N). Investors considering a seasonal trade in the smart phone subsector could consider the First Trust NASDAQ CEA Smart Phone Index Fund (FONE-Q), a global equally weighted ETF holding 57 security positions in the telecom and technology sectors.

Desktop users click on image to enlarge

Disclaimer: Don Vialoux and Jon Vialoux are authors of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds available at http://TimingTheMarket.ca and www.equityclock.com. The enclosed report is for information only. It should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed.