Bloomberg News

Strength of Tech Stocks at Nine-Year High: Technical Analysis

November 15, 2011

Nov. 15 (Bloomberg) -- Computer and software makers may extend gains after a gauge of the industry surged to the highest ratio versus the Standard & Poor’s 500 Index in more than nine years, according to Brown Brothers Harriman & Co.

The level of the Technology Select Sector SPDR Fund, an exchange-traded fund that tracks companies including Apple Inc. and International Business Machines Corp., divided by the SPDR S&P 500 ETF Trust was 0.2128 on Oct. 17, the highest since January 2002, data compiled by Bloomberg show. The figure fell to 0.2069 as of yesterday.

The advance by the technology fund suggests the industry may have enough momentum to rise further, said Ari Wald, a New York-based technical strategist at Brown Brothers. Technology shares posted the second-best performance after utilities among the S&P 500’s 10 groups, losing 0.8 percent, over the past six months. The broader benchmark index fell 6.4 percent amid concern Europe’s debt crisis will slow global economic growth.

“We broke out to the upside recently, showing relatively strong demand,” Wald said in a telephone interview yesterday. “That’s a pretty good sign, especially that it’s able to post relative gains during this period of market volatility.”

Technology stocks led the S&P 500’s advance today, climbing 1.3 percent as a group. Intel Corp. added 2.9 percent after Warren Buffett’s Berkshire Hathaway Inc. disclosed a stake, and Apple Inc. rose 2.5 percent.

The industry is beating the S&P 500 after exceeding analysts’ earnings forecasts by a bigger margin. Since Oct. 11, 83 percent of companies in the S&P 500 Information Technology Index reported higher-than-expected profit, compared with a proportion of 73 percent for the broad benchmark.

2000 to 2002

The technology ETF trailed the S&P 500 between March 2000 and September 2002, with the ratio falling to 0.1446 from 0.4264. The multiple was 0.2069 yesterday.

While the industry’s relative strength recovers, the ETF has yet to surpass its 2007 peak of $28.40, said Brian LaRose, a technical analyst at United-ICAP in Jersey City, New Jersey.

“I’d be a little more excited about a breakout from here if the XLK could get through the prior highs,” LaRose said in a telephone interview yesterday, referring to the fund’s stock ticker. “At that point I think you could have some room for this market to continue higher.”

Wald at Brown Brothers said the relative price breakout suggests “fresh demand” for technology stocks.

“That supports the continuation of upward swing,” he said.

--Editors: Nick Baker, Stephen Kleege

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Kaitlyn Kiernan in New York at kkiernan2@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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