Chart of the Day: Apple and Tech ETFs

May 23rd at 12:33pm by Paul Weisbruch, Street One Financial

Markets sold off hard Wednesday with technology sector ETFs falling about as much as the major stock indexes such as the Dow and S&P 500.

We have noted throughout 2012 that the Technology sector has been a relative strength leader compared to the broad market S&P 500, largely due to the leadership of Apple (NasdaqGS: AAPL).

With AAPL and the NDX (Nasdaq 100) which is one of the prominent “Tech” indices since it is heavily concentrated in Tech equity names, both faltering recently, it is time for us to readdress the sector from the long side given the retreat from the highs.

The most prominent technology related ETF is undoubtedly PowerShares QQQ (NasdaqGM: QQQ), which has amassed $30 billion and trades more than 52 million shares per day on average.

The ETF, being market cap weighted, is also heavily tilted to AAPL, which makes up 18.57% of the portfolio currently.

Similarly, SPDR Technology (NYSEArca: XLK), a related ETF that tracks the Technology sub-sector of the S&P 500 Index, has an 18.46% weighting to AAPL. Even despite the rather steep sell-off in May and decline from the recent market highs, the NDX is still handily outperforming the broad market, up 11.83% year to date versus the SPX (S&P 500 Index) up 5.33%. Furthermore, AAPL is still up 37.52%.

In the trailing one year period, the AAPL leadership is even more evident, up 66.15% versus the NDX up 8.08%, and the SPX down 1.10%. In recent days, the NDX has traded as low as 2474.70, but it bounced shortly thereafter and closed at 2539.20 today. Our market technician David Chojacki notes technical support being present at the 2525 and 2500 levels so we will be watching with vigilance in the next few sessions to see how the index reacts around these levels.

Those whom are benchmarking too the NDX and looking to leverage trades on the long side at these levels may consider ProShares UltraPro QQQ (NasdaqGM: TQQQ) which delivers 3 times the daily returns of the Nasdaq 100 Index, as well as ProShares Ultra QQQ (NYSEArca: QLD) which is the 2 times daily long product.

Similarly, Direxion offers Direxion Daily Technology Bull 3X (NYSEArca: TYH) which tracks the Russell 1000 Technology Index. For those portfolio managers whom want to attempt to mitigate any perceived “overweight” to AAPL in the market cap weighted NDX, but still want exposure to the broad Technology sector, First Trust Nasdaq 100 Equal Weighted (NasdaqGM: QQEW) as well as Direxion Nasdaq 100 Equal Weighted (NYSEArca: QQQE) will likely be appealing.

PowerShares QQQ


For more information on Street One ETF research and ETF trade execution/liquidity services, contact pweisbruch@streetonefinancial.com.

Full disclosure: Tom Lydon’s clients own AAPL.

Tickers

QQQ