A deal on the fiscal cliff -- at least the tax part -- caused
the "risk on" trade to go into hyper-drive on Jan. 2. The first
trading session of the year saw nearly every major average, and
most sectors, soar between 2% and 3% on average. This relief rally
over the certainty on tax policy wasn't lost on the technology
sector, as the
Technology Select SectorSPDR (
surged 3.33% in the first session of 2013.
For the technologyETF , the gains are a welcome respite from the
mostly downbeat trade that's taken place since September. In fact,
from the most recent high in September through the end of 2012, XLK
was hit with a loss of nearly 9%.
Thanks to an early 2012 run higher in theshares , technology
seemed like it would be the place to be for most of the year. Then
we started to see the sector falter.
So, why was the September selling in the tech ETF so sharp? The
one big answer is
Apple (Nasdaq: AAPL)
Shares of the personal technology giant really hit the skids in
September, falling from an all-time high of just north of $700 to
just over $500 in December. The 52-week chart here of Apple clearly
shows the September wane. In fact, the plight of the
cultishbellwether nearly mimics that of XLK, with a big run higher
to start out 2012, followed by a final quarter falloff.
Like XLK, Apple also saw a big buying spike in Wednesday trade,
asmoney came back into thestock in search of its former glory.
Now, it should come as no surprise that Apple has a major effect
on XLK. The stock makes up nearly 20% of this ETF's holdings, and
is by far the single-largest holding in thefund . So, in a way, as
Apple goes, so goes XLK.
However, what I like about XLK is that it holds 77 other
technologystocks , many of which have seen a big surge over the
past several years. Top holdings in XLK include
Microsoft (Nasdaq: MSFT)
Google (Nasdaq: GOOG)
, which, in order, round out the top five positions in the
If you own XLK, and if Apple is on, you are likely also going to
have alot of satellite techs respond well with money flowing into
the sector. The downside, of course, is that when Apple sells off,
it's hard for XLK to maintain abullish disposition .
Thebottom line here for traders is that both XLK and Apple have,
in my view, experienced a bit too much selling in Q4. That makes
them good candidates for a newwave of risk-on buying in each -- and
that is a trend traders can exploit over the next six weeks.
Action to Take -->
Buy XLK at themarket . Set stop-loss at $27.44. Set initialprice
target at $32.81 for a potential 11% gain in six weeks.
This article originally appeared on ProfitableTrading.com:
This Sector Could Reward Traders With
Double-Digit Gains in 6 Weeks