[Chart Of The Week] The Technology Breakout No One Is Talking About

JC Parets
September 6, 2016

One of the biggest reasons why I got so bullish towards U.S. Stocks in early July was because of the breakout in Technology out of a multi-year range. This sector represents over 20% of the S&P500, so the way I see it, if the largest sector in America is breaking out of a range to new 52-week highs, it's hard to be bearish. Although there were many other factors that have kept us bullish over the past few months, Technology has definitely been a big one.

Now, as sexy as this breakout in Technology stock prices might have been, it's another breakout in Technology last week that really gets me optimistic:

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[hide_from visible_to="member"]Here is a chart of Technology relative to the S&P500 going back to the late 90s. We all know about the historic peak for Tech back in March of 2000, but on a relative basis, the top came at the same time. Look at the consequences of such an epic crash: we have been trying to put in a bottom for a decade and a half:

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Technology vs S-P500 -XLK-SPY-

At this point, we are now breaking out above a downtrend line from late 2001. The big question here: Is this the beginning of a historic breakout that is 15 years in the making?

I would argue that the path of least resistance here is higher. This is a shorter-term look at the same ratio. Here we can see Technology relative to the S&P500 breaking out above the 2012 highs after finding support in April near former resistance in 2014-2015. This was also the 38.2% retracement of the 2013-2016 rally, so the pullback was a standard one and makes perfect sense within the context of an ongoing uptrend.

Technology vs S-P500 -XLK-SPY- d

As long as this ratio: Technology/S&P500 (XLK/SPY) is above the 2012 highs, 1) it's hard to be bearish Tech and 2) it's hard to be bearish U.S. Stocks considering the largest sector in America is breaking out of a 15-year base relative to the rest of the market.

This is the one we want to watch guys

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Tags: $XLK $SPY

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