Seasonality Headwinds?
Technology overall has enjoyed a robust gain of 27% YTD (just last week it surrendered its top spot among the 11 major S&P sectors to real estate), but the chart below shows the XLK heading into what I thought was strong Q4. September, October and December finish the month higher just 50% of the time, and November has ended the month higher than it started 3 of the last 4. With the group already enjoying a strong run, will it be more susceptible to a weaker finish? No one knows the answer of course, but the fact that the Nasdaq trades just 6% off all time highs, and that is has acted well so far this year, I would expect a decent move as we approach 2020.
Software Reclaiming Leadership:
Competition and rivalry is healthy, as it brings out the best in life and markets. Below is the ratio chart comparing the SMH to the IGV, and it is a relationship we have been watching for some time. We were somewhat concerned that software was “softening”, but that may be beginning to shift back again in favor of the IGV. On the chart here, we can see how just today the semiconductors recorded their first lower low, after FOUR consecutive higher lows. This does not mean the semiconductors are ready to pack it in, they just may not act as powerfully as software going forward. The SMH did register a bullish harami candle Monday, and some individual plays have been stepping up their game including IPHI CRUS PI and LSCC.
Examples:
Software stocks have been trying to maintain their leadership role, as we have discussed recently, and it will be up to the smaller pot of generals in the group to do so. Below is the chart of AVLR, and how it appeared in our 8/15 Technology Report. This particular name never undercut its rising 50 day SMA this year thus far, and it must be respected. We are big fans of gap fills and round number theory, and this one filled in a gap on 8/14 from the earnings related 8/7 session. One has to admire the THREE straight double digit gains after earnings it has recorded, and this one should be purchased on pullbacks going forward.