Shorting the Technology Sector ETF

 

The technology sector as measured by the SPDR Technology ETF (ARCA:XLK) may have reached some meaningful resistance over the past few days.  After rallying more than 100% off the early 2009 bottom to its recent highs in February this exchange traded fund proceeded to break that multiyear uptrend in early August.  Year to date the technology sector has been a relative outperformer versus the other cyclical sectors in the S&P 500 but is down around 4% for the year none-the-less.  It is important to note however that a good part of the year to date outperformance may have come from Apple (NASDAQ:AAPL), which with a 14% weighting (as of July 31) is the biggest holding of this ETF.  

Much like most other sectors and major equity indices the broken weekly chart sets up for a theme of selling the rallies.   

 

On the 12 month daily chart the SPDR Technology ETF (ARCA:XLK) has broken horizontal support around the $24.50 area and after finding oversold levels on August 9th  along with the broader market has since re-tested that level.

 

On the close-up daily chart the resistance of the $24.50 area is apparent.  Give that the broader market is still somewhat oversold it may however be a little too early to short the SPDR Technology ETF (ARCA:XLK) with conviction right now.  The slow-stochatics indicator too is not yet in overbought territory.  As such one could start shorting a small amount (1/4 of one’s normal position size) and once it becomes clearer that the broader markets are running out of steam of the oversold rally one could then slowly add to the short position.  Also note that between $25.30 and $25.60 this index would run into further resistance at its 200 and 50 day simple moving averages.  Stops could be set just north of $25.60  with a profit target at $22.00.          

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