XLK Shows Signs of Life as Key Moving Average Holds


It has been a wild ride for the Technology SPDR (XLK) since August, but the ETF is showing signs of strength by holding the 200-day moving average in May. The red line shows the 200-day SMA dissecting the chart in the 41.5-42 area. Note that XLK broke above this key moving average in early March and is now testing this breakout here in May. I consider the cup half full (bullish) when XLK is above and half empty (bearish) when below. 

The May consolidation provides the first levels to watch for a directional signal. XLK fell rather sharply in late April, but this decline retraced around 50% of the prior advance and ultimately held the 200-day. The ETF firmed for three weeks and a breakout at 43 would suggest a successful test of the 200-day. We must also consider the alternative and this could be a bearish pennant. A break below Thursday's low would confirm this pattern and signal a continuation of the late April decline. 

Note that XLK is a bit different than the Nasdaq 100 ETF (QQQ) because it does not have any biotech stocks and it does not have Amazon. The five biggest holdings are Apple (13%), Alphabet (10.39%), Microsoft (9.86%), Facebook (6.63%) and AT&T (5.82%). Together, these stocks account for around 45% of the ETF.

I also noticed that the Equal-weight Technology ETF (RYT) has been outperforming the Technology SPDR (XLK) since early February. This means the average tech stock is doing better than large-cap tech stocks. The main window on the chart below shows the price relative (RYT:XLK ratio)  zigzagging higher the last few months and turning again last week. The bottom window shows RYT bouncing around the 200-day moving average in early May and surging 1.5% on Friday to turn positive for the month. 

Thanks for tuning in and have a good weekend!
--Arthur Hill CMT

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Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at 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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