Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.
The technology sector as measured by the Technology Select Sector SPDR (NYSE:XLK) may have reached some meaningful resistance over the past few days. After rallying more than 100% off the early 2009 bottom to its recent highs in February, this exchange-traded fund (ETF) proceeded to break that multi-year uptrend in early August.
Year to date, the technology sector has been a relative outperformer versus the other cyclical sectors in the S&P 500, but it is down around 4% for the year nonetheless. And it is important to note that a good part of the year-to-date outperformance may have come from Apple (NASDAQ:AAPL), which is the biggest holding of this ETF with a 14% weighting (as of July 31).
Much like most other sectors and major equity indices, the broken weekly chart sets up for a theme of selling the rallies.
On the 12-month daily chart, XLK has broken horizontal support around the $24.50 area, and after finding oversold levels on Aug. 9, along with the broader market, has since re-tested that level.
On the close-up daily chart, the resistance of the $24.50 area is apparent. Given that the broader market is still somewhat oversold, it may be a little too early to short XLK with conviction right now. The slow stochatics indicator is also not yet in overbought territory.
As such, one could start shorting a small amount (one-fourth of your normal position size), and once it becomes clearer that the broader markets are running out of steam of the oversold rally, one could then slowly add to the short position.
Also note that between $25.30 and $25.60, this index would run into further resistance at its 200-day and 50-day simple moving averages. Stops could be set just north of $25.60 with a downside target at $22.
