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It's Big Wedge Versus Little Wedge for XLK

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The Technology SPDR (XLK) has been lagging the broader market for some time now, but the trend since mid November remains up and a bullish continuation pattern is taking shape this month. Weighed down by its top components, XLK has been lagging the S&P 500 ETF since September. Relative weakness continued in January as the price relative fell further the last 2-3 weeks and recorded a 52-week low. Relative weakness in this key sector SPDR is negative, but the trend since mid November remains up. The blue trend lines show a rising wedge taking shape the last two months.

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Click this image for a live chart

Even though rising wedges are potentially bearish, the wedge is currently rising and the trend is up as long as it rises. A break below the November trend line would provide the first sign of a medium-term trend reversal. Short-term, XLK formed a smaller falling wedge this month. Note that this pattern evolved after the 31-Dec surge and 2-Jan gap. Technically, this pattern looks like a bullish continuation pattern akin to a falling flag or pennant. A move above the orange resistance zone would reverse this fall and signal a continuation higher. Next week should tell the tale because IBM reports on Tuesday and Apple reports on Wednesday.
 
Good day and good trading!
Arthur Hill CMT

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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