The U.S. technology sector is approaching one of its two periods of seasonal strength. What are prospects this year?
The U.S. tech sector has two periods of seasonal strength on a real and relative basis during the year. The former period is from Oct. 9 to Jan. 17 and the latter period is from April 15 to July 17. The seasonal tendency is influenced by consumer purchases of electronic products during the Christmas and spring buying seasons, as well as anticipation of new gadgets released in the second half of the year. According to EquityClock.com, returns from April 15 through to July 17 over the past 20 years have averaged 8.04 percent. Positive results were realized in 14 of the past 20 periods and the average outperformance versus the S&P 500 index was 4.96 percent.
Prospects for the April to July period this year are exceptional. April through June is typically the period when major technology companies hold their developer conferences, which are intended to build interest in new product developments and attract programmers to build the next generation of software and applications for smartphones, laptops, and wearable devices. Microsoft held its conference at the beginning of April, while Apple and Google will hold their events in June. The latest advancements to mobile operating systems and new product release dates are just some of the announcements expected at this year's conferences. New products this year that are attracting attention include Apple's iPhone 6, Google Glass, and a smartphone from Amazon, all of which are expected to be released in the second half of 2014.
On the charts, the S&P Technology Index has a neutral profile. Intermediate trend, as gauged by the direction of the 50-day moving average, is up. The index has moved sideways since the year began between 555.93 and 606.71. Short term momentum indicators are slightly oversold prior to entering their period of seasonal strength. Strength relative to the S&P 500 index has been negative during the past three months in which negative tendencies are common following the fourth-quarter surge.
Weakness in the technology heavy Nasdaq composite has acted as a strain on large-cap tech stocks over the past five weeks, primarily as a result of weakness in high-flying momentum stocks that are Nasdaq-listed. The Nasdaq is now the most oversold since November of 2012, suggesting downside pressures may be temporarily exhausted. A rebound would provide fuel to the seasonal technology trade.
The easiest way to invest in the U.S. technology sector is to own exchange-traded funds in the sector. A wide variety of ETFs are available for the sector and its many subsectors. U.S. exchanges list 41 technology ETFs, excluding leveraged products. The most actively traded ETF trading on U.S. exchanges is the Technology Sector SPDR Fund (XLK-NYSE), an ETF that tracks the S&P Technology Index. Other alternatives include the Vanguard Information Technology Index Fund (VGT-NYSE), the iShares Dow Jones US Technology Sector Index Fund (IYW-NYSE), and the Guggenheim S&P 500 Equal Weight Technology ETF (RYT-NYSE).
Don and Jon Vialoux are authors of free daily reports on equity markets, sectors, commodities, and Exchange Traded Funds. . Daily reports are available at http://TimingTheMarket.ca/ and http://EquityClock.com. They also are Research Analysts for Horizons ETFs Management (Canada) Inc. All of the views expressed herein are their personal views although they may be reflected in positions or transactions in the various client portfolios managed by Horizons ETFs Management (Canada) Inc.