About That Relative Breakout In Tech
- Posted by JC Parets
- on August 7th, 2012
We are definitely positive on the long-term outlook for Technology stocks. We first mentioned the prospects of a monster breakout this Fall when we saw some of our favorite large-cap tech names coming out of decade-long bases (see here). “The bigger the base, the higher in space”, as they say right?
But on a shorter time frame, the relative performance in Tech has been a great tell for us. In early April, the S&P Technology sector ($XLK) broke its uptrend relative to the S&P500 signaling a more risk-averse market environment to come. Sure enough, equities as a group have been in a frustrating sideways trading range ever since (see here). But just recently, Technology has broken out of a 4-month relative downtrend confirming some of the breakouts that we’ve seen in other risk assets.
Take a look at this chart below. Talk about keep it simple stupid. There are 3 trendlines and your standard Fibonacci Retracement levels. You can see the breakdown in early April and the two downtrend lines now broken to the upside. I drew an aggressive line and a more conservative trendline from a lower peak just to be sure:
I also don’t think it’s a coincidence that the relative sell-off in Tech found support at the 61.8% Fibonacci Retracement from the 2012 lows to the highs. We see this all the time. It looks to me like a text book correction within a larger uptrend that we believe is already in place here in Technology.
It’s hard for us to ignore this.
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) and is a member of the Market Technicians Association. More
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