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Finance: Analyzing key market indices for tech stocks

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PHUKET: As of the end of March, US stock markets hit some overhead resistance on their technical charts and pulled back a bit, with the rally that started in February looking similar on the technical charts to the rally of September, which ultimately rolled over.

There is a strong possibility that the market (or at least the S&P 500) has been in a shallow ten to 15 per cent correction and may be trying to finally break the downtrend. However, many stocks over the past two years have lost between 20 and 70 per cent of their value, much more than broader US indices, making the market very challenging for investors.

For that reason, it’s worth taking a closer look at some key market indices:

The S&P 500 needs to break out above the 2,100 level. However, there continues to be a risk of another low, because the index peaked last summer, then rallied again in December to a lower high and is now in another rally.

The problem is that the last rallies were followed by new lower lows – the very definition of a downtrend. If the bulls continue to buy and leadership stocks start to emerge, we could still see the S&P 500 above that 2,100 level and perhaps finally break the downtrend. If that were to happen, it could be time to start investing in stocks again.

Where tech stocks go is where the stock market (especially the tech laden NASDAQ) will ultimately go. And that’s why I am watching the technical chart for the Technology Select Sector SPDR ETF (NYSEARCA: XLK). This ETF needs to take out its old high, but the technical chart shows a lower high with sellers gaining control back in January, and now a counter-trend rally is underway. Since the jury is still out and the ETF could end up rolling back over again, investors need to remain patient and watch its technical chart.

The Industrial Select Sector SPDR Fund (NYSEARCA: XLI) is actually looking very bullish as the technical chart shows the ETF taking off again and breaking above a downtrend line. However, we need to see buyers step in to get XLI back up to the US$58 level. If the ETF can clear this old high, we can cross out the last peak on the technical chart. For that reason, I am watching XLI very carefully as one sector I might take a position in, if I see follow through.

The Financial Select

Sector SPDR Fund (NYSEARCA:XLF) has begun acting well after being really punished in January. Despite a nice four-week rally since then, XLF is starting to hit overhead resistance on its technical chart as some key financial stocks are in critical care right now. And while central banks are doing everything they can to prop up their respective economies, the US Fed will be out of moves to help the financial sector should XLF roll over again. XLF was up three per cent by April 24; it continues to improve and now sits above its 200 day moving average, a positive sign.

The SPDR STOXX Europe 50 ETF (NYSEARCA: FEU) and European markets have not recovered all that much over the last six years. Although FEU has tried to rally, the recent terrorist attacks have further hit performance and it remains in a bear market with an ongoing downward trend. Until FEU can produce a higher high, I would completely avoid European stocks.

Some leadership stocks are starting to emerge and I will be ready to take new positions if the Dow Jones can continue to break higher. However, I will also be sticking with the US markets – if and only if they can get going to the upside.

Don Freeman, BSME is president of Freeman Capital Management, a Registered Investment Advisor with the US Securities Exchange Commission (SEC), based in Phuket. He has over 15 years’ experience working with expatriates, specializing in portfolio management, US tax preparation, financial planning and UK pension transfers. Call for a free portfolio review. Don can be reached at: 089-970-5795 or email: freemancapital@gmail.com.

— Don Freeman

 

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