Talking Technicals With Tech ETFs Like QQQ, XLK

Technology companies have regained their footing in recent months as volatility dissipated and investors renewed their focus on a beaten up growth category, with the Nasdaq Composite and the PowerShares QQQ (NasdaqGM: QQQ), which tracks the tech heavy Nasdaq-100 Index, both making new highs.

The same can be said of the Technology Select Sector SPDR (NYSEArca: XLK). XLK, the largest technology exchange traded fund by assets, surged 4.2% last week, bringing its year-to-date gain to about 15.2%.

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Last week’s bullish action in the technology sector, the largest sector allocation in the S&P 500, was the first sign of credible upside in the group since Election Day.

However, President-elect Trump’s fiscal policies could bolster growth and fuel inflationary pressures, which has prompted speculation of Federal Reserve interest rate hikes and a strengthening U.S. dollar. Consequently, with an appreciating USD, large multi-national companies could experience lower profits and sales in overseas markets, and technology companies in the S&P 500 receive almost 60% of their revenue outside the U.S., the Seattle Times reports.

“This is good news for investors as the Technology sector had been lagging a bit. It now seems to have found its stride. The Semiconductors Sector made its move to new highs yesterday and now the NASDAQ 100 (NDX) and PowerShares QQQs ETF (NASDAQ:QQQ) are knocking on the door,” according to See It Market.

QQQ, one of the largest U.S. ETFs, has equal-weight equivalents equal-weight equivalents such as the Direxion NASDAQ-100 Equal Weighted Index Shares (NYSEArca: QQQE) and the First Trust NASDAQ-100 Equal Weighted Index Fund (NasdaqGS: QQEW).

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“That said, in looking at the charts below, it is clear that large cap tech stocks leadership is aiding this move higher. Below are a series of charts showing this dynamic. Large cap tech is breaking out vs the S&P 500, while equal weight tech is grinding a bit.  For those who like to position ahead of moves instead of waiting for a dip after the breakout, I think the XLK should lead to breakouts for broader Technology. But for now, it still pays to be selective,” adds See It Market.

Investors looking for tactical plays on chip stocks, a group that has been a key driver of tech sector upside this year, can consider the VanEck Vectors Semiconductor ETF (NYSEArca: SMH) and the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX).

Tom Lydon’s clients own shares of QQQ.