SOME MONEY FLOWING INTO FINANCIALS HAS COME OUT OF TECHNOLOGY -- INTERNET STOCKS MAY HAVE FOUND A BOTTOM -- TECHNOLOGY SPDR HOLDS CHART SUPPORT -- APPLE AND MICROSOFT ARE HOLDING UP -- ADVANCED MICRO DEVICES LEADS SEMICONDUCTORS HIGHER
SOME TECHNOLOGY WINNINGS WENT INTO FINANCIALS... A lot is being made of the fact that technology stocks have underperformed the broader market since last Tuesday's election. I suggested last week that technology selling was most likely a rotation out of some expensive technology stocks (mainly in the Internet) and into less expensive value stocks like financials. That was most likely because of the surge in bond yields to the highest level in ten months and significant rotations out of former market leaders (like technology) into former market laggards like financials, industrials, healthcare, and materials. Those former losers have surged to market leadership over the last week while technology has slipped. Chart 1 shows a "ratio" of the Technology SPDR (XLK) divided by the Financials SPDR (XLF) plunging over the last week. Most of that came from financial buying rather than technology selling. But the ratio shows a dramatic change in market leadership. There may be good news on that chart however. It has reached a potential support level formed during August 2015, and its 14-day RSI (top of chart) is extremely oversold. That suggests that the technology selling (and financial buying) has been overdone. It's also reassuring to know that most of the technology selling has been concentrated in one group -- Internet stocks.
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Chart 1
INTERNET INDEX TESTS 200-DAY AVERAGE... Between the November 8 election and this Monday, the technology sector had lost -2.5% versus a 1.5% gain in the S&P 500. Within the technology sector, the biggest loser was the Internet group with a loss of -5%. Most other technology groups, however, held up much better (including semiconductors). Chart 2 may offer some reassurance for the Internet group. It shows the Dow Jones US Internet Index finding support at its 200-day average and potential chart support along its April/May highs (horizontal line). If that support holds, the technology selloff may have run its course. Very little chart damage has been done to the technology sector itself -- nor to several of its biggest stocks.
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Chart 2
TECHNOLOGY SPDR STILL IN UPTREND... Chart 3 shows the Technology Sector SPDR (XLK) bouncing off initial chart support along its September low. As long as that support holds, its uptrend will remain intact. In addition, the XLK is well above its 200-day average, a rising support line drawn under its February/June lows, and chart support along its April peak. Chart 4 shows the XLK/SPX ratio starting to bounce after its recent drop. The ratio is also finding support at a rising trendline starting in May, as well as chart support along its April high. Its 14-day RSI line (top of chart) is also at the most oversold level since its early May bottom. So both on an absolute and relative basis, the recent selloff in technology stocks appears to be finding a bottom.
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Chart 3
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Chart 4
APPLE AND MICROSOFT HOLD UP OK -- AMD LEADS CHIPS HIGHER... The two biggest stocks in the XLK are also holding up okay. Chart 5 shows Apple (AAPL) bouncing off chart support at its 200-day average and its September low. Chart 6 shows Microsoft (MSFT) bouncing off its 50-day line. Chart 7 shows Advanced Micro Devices (AMD) leading a rally in the semiconductor group. Chart 8 shows the VanEck Vectors Semiconductor ETF (SMH) rising to a six-week high. The SMH/XLK ratio (top of chart) is at a new high. Chip leadership is normally a good sign for the technology sector. Those charts suggest that the technology uptrend is alive and well despite the recent setback. That's a positive sign for the rest of the market.
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Chart 5
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Chart 6
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Chart 7
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Chart 8
FINANCIALS AND BOND YIELDS LOOK OVER-EXTENDED... Financial stocks have had a big run since the election. Chart 9, however, shows the 14-day RSI line for the Financials SPDR (XLF) well into overbought territory above 70. That's usually a sign that a group has risen too far too fast and is in need of a breather. That's probably because bond yields look over-extended as well. Chart 10 shows the 10-Year Treasury Yield ($TNX) having risen above a falling trendline extending back to its early 2014 peak (following the 2013 taper tantrum). Its 14-day RSI line (on top of chart), however, is at the most overbought reading in three years. That suggests that the surge in bond yields (and drop in bond prices) may be overdone as well. Any profit-taking in overbought financials may lend some support to an oversold technology sector.
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Chart 9
