Wednesday, March 31, 2010

Technology Sector: XLK Update

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Overview
XLK is up +0.74% for the week, up +6.82% for the month, up +1.05% for the year, and up +75.26% since the March 9, 2009 market bottom. XLK is lagging other sectors and the major indexes.  The XLK is a general technology ETF designed to represent the technology sector of the S&P 500, which is approximately 22% of the S&P 500. This ETF also includes the S&P telecommunications sector, which is merged into this technology sector. See the XLK Technology portfolio holdings here. Top 6 holdings currently are: Microsoft 9.87%, Apple 9.30%, IBM 7.27%, AT&T 6.66%, Cisco 6.63%, and Google 5.95%, for a total of 45.68% of the portfolio.  This is a very liquid ETF.

XLK Daily Chart
Below is the XLK daily chart from the July 2009 pullback bottom (7-7-09 17.34) up through the current close.

Noteworthy Closing Prices on daily chart below:
Current 23.17 (Second highest yellow line)
2010 YTD 1-4-10 High 23.27 (Highest yellow horizontal line)
YE 12-31-09 22.93 (Third highest yellow horizontal line)
10 Month EMA 21.07 (Lowest yellow horizontal line)


XLK: No New 2010 High Yet




Intermediate-Term Trend
The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, signalled a bull market for the XLK on Thursday, March 18. That is, the 25d sma is greater than the 50d sma. A bear market signal had been in effect since February 5, 2010 the first such signal since the February 11, 2009 through April 2, 2009 signal. What a bull run!

Resistance and Support
The current closing price, the second highest yellow horizontal line, has reached the previous 2010 YTD 1-4-10 high of 23.27 and is attempting an upside breakout.  This is recent resistance.  There is also long-term resistance from August 22 and 28, 2008 of 23.30 and 23.27, respectively.  Even earlier resistance is from April 2008 and earlier that year.  In addition, there is even more resistance back from late 2006 into early 2007.  If XLK can get to about 23.80 or above, a dramatic upside breakout could occur.

Support
There are multiple levels of support below, including the sideways trading in March and further back to January and late December.  The price of 23.00 even has played an important role.

Moving Averages
The 25d sma stopped descending on February 26 and bounced up. The 50d sma has leveled off and began to rise gradually.  The 100d and 200d sma's continue to ascend. The 25d sma has regained the 50d and 100d sma's. The 50d sma has not regained the 100d sma yet.  XLK regained the 100d sma on March 1 and the 50d sma on March 4.

Uptrend Line
The uptrend line, a rate of price ascent, is from the March 9. 2009 closing low of 13.22 up through the February 4, 2010 closing low of 20.86. The February 4 closing low has been the bottom for this 2010 pullback to date. The XLK has remained easily above this trendline since bouncing up above on February 5.

Downtrend Line
The downtrend line, a rate of price descent, is from the October 31, 2007 all-time closing high of 28.40 down through the January 4, 2010 closing high of 23.27, the peak YTD closing high so far. XLK regained this downtrend line on March 22.

Relative Strength Index (RSI)
RSI 14 day = 67.13 is reasonable; has dropped due to recent consolidation
RSI 28 day = 70.48 is slightly overbought, has dropped from low 80s due to recent consolidation
The RSIs are reasonable due to the recent consolidation trading.  Nothing noteworthy here.

MACD (12,26,9)
The MACD is bullish and has been since February 16.

Long-Term Trend
The lowest yellow horizontal line is the 10 month exponential moving average from the monthly chart, which I have overlayed on this daily chart. That is the line in the sand, so to speak, for the long term signal of a bear market. The XLK is above this signal at the current close, the second highest yellow horizontal line.

Conclusion
XLK is battling to breakout upside to new 2010 highs, but it hasn't happened yet.  XLK has rallied off the low of February 4 but has stalled into consolidation trading. The current price is still below the January 4, 2010 YTD closing high. Many other stocks and sectors plus all the major indexes have set new 2010 YTD highs, XLK has not.  The RSIs are reasonable. XLK is lagging other sectors and the major indexees.  I believe XLK will ultimately break through upside to new 2010 highs, but I'm disappointed it is taking so long.  If and when this occurs and 23.80 is reached, a decent upside breakout could then occur.  The intermediate-term trend is bullish. The long-term trend remains bullish.


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