Technology exchange traded funds have been in the spotlight this week following Apple’s (NasdaqGS: AAPL) fiscal fourth-quarter earnings report on Tuesday. As usual, Apple’s earnings highlighted Apple-heavy ETFs including the Technology Select Sector SPDR (NYSEArca: XLK) and the Vanguard Information Technology ETF (NYSEArca: VGT).
Sam Stovall, U.S. equity strategist at S&P Capital IQ, calculated that since 1990, the S&P 500 index has averaged a 4.9% gain in the fourth quarter, reports Josh Lipton for CNBC.
Since 1995, the technology sector has returned an average 4.6% and rose 71% of the time, or five out of seven instances, during the last three months, according to Kensho. XLK tracks the S&P Technology Select Sector Index. VGT reflects the performance of even broader MSCI US Investable Market Index of information technology companies.
The tech sector dropped about 4.1% during the third quarter, its worst performance since the fourth quarter of 2012.
However, the tech sector could be turning around. As a growth-centric sector, the area typically leads during a market rally. Consequently, in the fourth quarter, technology stocks may see a boost as money managers shift money to winning stocks and away underperformers before the year-end.
XLK, the largest tech sector ETF “is comprised of 76 holdings from across the technology sector each with a weighted average market capitalization of $270 billion. The fund is extremely popular with investors given its liquidity a low gross expense ratio of 0.14%. Taking a look at the chart, you can see that see that the price recently broke above a key level of resistance shown by the dotted trendline. This bullish gap higher is a clear signal that the trend is in favor of the bulls and at this point any would expect the upward momentum to continue,” according to Investopedia.
Companies may scramble to spend their cash hoards before the year-end, or engage in so-called budget flush. If companies have not used money on new technologies yet, they are likely to spend near the end of the year.
Additionally, all the latest consumer technologies are put in the limelight during the holiday season.
“At this point, many bullish traders will likely look to protect their long positions by placing a stop-loss order below the support of the 200-day moving average, which is currently trading near $41.55. This is one of the strongest risk/reward ratios anywhere in the public markets and will likely remain a key sector for the bulls leading into 2016,” adds Investopedia
Technology Select Sector SPDR
