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Wednesday, May 12, 2010

S&P Technology Sector: XLK Update

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XLK Overview
XLK is up +3.91% for the week, down -3.38% for the month, down -1.44% for the year, and up +70.95% since the March 9, 2009 market bottom. XLK has been lagging other sectors and the major indexes this year, and declined on this most recent market pullback, including Flash Crash Thursday May 6 . The XLK is a general technology ETF designed to represent the technology sector of the S&P 500, which is approximately 21.47% 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. This is a very liquid ETF.

IYW Technology ETF
IYW is up +4.76% for the week, down +3.21% for the month, up +0.19% for the year, and up +86.87% since the March 9, 2009 market bottom. Overall, IYW has outperformed XLK. The iShares Dow Jones Technology Index ETF portfolio holdings are here. I like this ETF, but the 50 day average daily volume is about 390K+, compared to XLK of 10M shares. IYW trades similar to XLK.

XLK Daily Chart
Below is the XLK daily chart for 2010.

Noteworthy Closing Prices on Daily Chart below:
Current Close 22.60 (Highest yellow horizontal line)
YTD 4-23-10 High 24.08
YE 12-31-09 22.93
10 Month EMA 21.68 (Lowest yellow horizontal line)


XLK: Great Q1 Tech Revenues, Earnings, Outlook - So What?




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, which is still intact. That is, the 25d sma is greater than the 50d sma.

Resistance
The current closing price, the higher yellow horizontal line, has pulled back dramatically.  There are multiple levels of resistance above..  The benchmark prices of 23.00 and 24.00 have a lot of price interaction as short, intermediate, and long term resistance.

Support
There are multiple levels of support below, and there appears to be some recent support from November and December 2009 from about 22.22 to 22.42.  There is also long-term support from the July and August, 2008 price area, where XLK is trading currently.  However, with the recent price volatility, support may be tenuous.

Moving Averages
XLK plunged through the 25d, 50d, and 100d simple moving averages last week and bounced upwards just as the 200d sma was almost reached on Friday.  XLK has remained above the 200d  sma since May 22, 2009.  The 100d sma was briefly regained then lost on Tuesday.  At this point XLK remains below the 25d, 50d, and 100d sma's, which reveals price weakness.

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 was the bottom of the previous 2010 pullback. XLK descend to this uptrend line on Wednesday, May 6 and then plunged downwards through on Flash Crash Thursday, May 7.  XLK has yet to regain this trendline.

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 April 23, 2010 closing high of 24.08, the peak YTD closing high so far. XLK is below this downtrend line.

Relative Strength Index (RSI)
RSI 14 day = 36.01 is oversold, but higher than the 23.91 low on May 7
RSI 28 day = 46.22 is reasonable, but higher than the 38.31 low on May 7
The RSIs indicate marginally oversold conditions.

MACD (12,26,9)
The MACD has been bearish since April 27.

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 highest yellow horizontal line.

Conclusion
XLK set a 2010 YTD high on April 23 and then was pulled down by the overall market downdraft.  A lot of the tech earnings were priced in advance of this current earnings season and expectations have been high.  The technology sector Q1 revenues, earnings, and outlook have been very good.   I remain bullish on XLK in 2010 and still predict there will be more 2010 YTD highs.  The RSI 14d & 28d indicate marginally oversold conditions.  The MACD is bearish as a result of the general market pullback. The intermediate-term trend and long-term trend remain bullish.

Disclosure
We are long AAPL and CRM which are in the XLK portfolio, but do not have any long or short position in XLK stock.


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