The Technology Select Sector SPDR (NYSEArca: XLK), the largest technology exchange traded fund by assets, along with rival, traditional technology ETFs such as the Fidelity MSCI Information Technology Index ETF (NYSEArca: FTEC) and the Vanguard Information Technology ETF (NYSEArca: VGT) have been surging this year, delivering some of the best performances among sector ETFs as tech stocks soar.
The good news for the technology sector, the largest sector allocation in the S&P 500, and the aforementioned ETFs is that the sector is not looking toppy on the charts. At least not yet. XLK is higher by nearly 19% year-to-date.
Since these are cap-weighted technology ETFs, FTEC, VGT and XLK feature large weights to the likes of Apple Inc. (NASDAQ: AAPL), Facebook Inc. (NASDAQ: FB) and Google parent Alphabet Inc. (NASDAQ: GOOG), among other tech titans.
On a daily bar chart of XLK, investors “can see how the picture has changed since early June. In early June, the XLK sold off to break below the rising 50-day moving average line. Volume increased during the decline and this turned the On-Balance-Volume (OBV) line low. Prices stabilized in early July and rallied above the 50-day line to a slight new high. The OBV line came off its early July low but its tepid rise tells us that the bulls have not rushed back in,” reports TheStreet.com.
While earnings multiples on tech stocks have jumped this year, investors should not expect another tech bubble on par with what was seen in 2000. In fact, the largest tech stocks today are far less pricey than their counterparts were in 2000.
“The tech sector posted double-digit earnings growth in the last two quarters, and it boasts the highest percentage of firms exceeding earnings expectations in the past four quarters among the 11 Global Industry Classification Standard (GICS) sectors,” said State Street Global Advisors (SSgA) in a note out last week.
Since the start of the third quarter, investors have allocated $108.4 million to XLK. Year-to-date, the benchmark technology ETF has seen inflows of nearly $337 million.
For more news and strategy on the Technology market, visit our Technology category.
Tom Lydon’s clients own shares of Apple and Facebook.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.