Tech ETFs to Rebound With Sector

IGV and FDN moving higher as firms invest in tech

By Anthony Mirhaydari, InvestorPlace Market Strategist

It’s been a rough couple of months for investors as economic data disappointed and Europe seemed on the verge of a full scale financial meltdown.

The data is beginning to surprise to the upside and home prices are moving higher again. And the index of leading indicators suggests that GDP growth is set to reaccelerate in a big way later this year. Greek politicians bit the bullet and passed another tough round of budget austerity measures.

As a result, the bulls are pushing stocks up and out of downtrend resistance as they rotate back into cyclical, economically sensitive stocks.

Although my favorite sector at the moment is financials, technology stocks are also perking up nicely since the group has exposure to what I believe will be the main driver of economic growth in the years to come: Corporate investment spending. With ironclad balance sheets, ultra-low inventories, lean headcounts, and years of underinvestment, businesses will soon have no choice but to deploy record cash reserves on things like new computers, new machinery, and new factories.

This line of thinking was in full effect this week as shares of software giant Microsoft (NASDAQ: MSFT) bolted higher in reaction to news of a possible early release of the next version of its flagship Windows operating system next spring. The company also unveiled its new “cloud based” Office 365 product to take the fight to Google (NASDAQ: GOOG) and its Google Docs service.

A number of technology ETFs are perking up and showing early signs of relative strength for the first time in months. The two best looking funds are the First Trust Dow Jones Internet Index Fund (NYSE: FDN), which holds stocks like Amazon (NASDAQ: AMZN), Yahoo! (NASDAQ: YHOO), and (NYSE: CRM), and the S&P North American Technology-Software Index Fund (NYSE: IGV), which holds Oracle (NASDAQ: ORCL), Adobe (NASDAQ: ADBE), and Symantec (NASDAQ: SYMC).

The IGV fund has seen its nine-day moving average make a bullish cross over its 18-day average for the first time since the rally out of the post-Japan earthquake March low. This is a solid sign of strength. Also, the On Balance Volume indicator suggests like minded traders are flooding in.

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The author can be contacted at [email protected]. Feel free to comment below.

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