Credit: Shutterstock photoEvery week, Marc Chaikin applies his groundbreaking analysis to an ETF or a sector. Today, he looks at the SPDR Select Sector Technology ETF (XLK).
As indicated by the Chaikin Power Bar rankings of the nine SPDR Selector S&P Sector ETFs, the Technology Sector (XLK) continues to show a very positive differential between bullish and bearish Chaikin Power Gauge stock ratings.
The recent pullback in Technology stocks, led by Apple (AAPL), represents a buying opportunity in the XLK, which has been outperforming the market since December of 2013. The most recent Relative Strength buy signal came right after the market’s sharp turnaround in October and reaffirmed the Technology Sector as a market leader, which then saw the XLK power up to new highs. See chart below from Chaikin Analytics.
With the XLK now oversold on a short-term basis, our Chief Market Analyst, John Schlitz, looked for the large cap tech names that were up yesterday morning when the broad market was still sharply lower on the day. These relative leaders should be in the forefront of the market when it pushes to new highs in the 2,100 – 2,125 area on the S&P 500 Index later this month.
Quality names like Apple, Cisco (CSCO), Computer Associates (CA) and Oracle (ORCL) all showed resistance to yesterday’s selling pressure. This morning, chip maker Broadcom (BRCM) raised 4th quarter revenue guidance, increased their dividend by 17% and announced a $1 billion buyback.
Use any short-term dips to buy the XLK in anticipation of renewed strength in this strong sector in the weeks ahead.
The SPDR Select Sector Technology ETF (XLK) has 26 Bullish-rated Chaikin Power Gauge stocks vs. 8 with Bearish ratings, as indicated by the Chaikin Power Bar for the XLK below. This indicates positive potential for the XLK over the next 3 – 6 months. When combined with strong Relative Strength to the market, this is a powerful one-two punch for investors.
The Chaikin Portfolio Health Check is an excellent tool to help zero in on the strongest stocks in any ETF; in the XLK there are 26 bullish-rated stocks.
By looking at the individual component stocks through the lens of the 20 factor, Chaikin Power Gauge stock rating model, you can easily find the stocks in the XLK ETF with the strongest price potential over the next 3-6 months. These are the stocks to buy, as they are likely to outperform the XLK, as well as the overall market.
The Chaikin Power Grid in Portfolio Health Check (see below) maps stocks and industry groups from strong to weak so you can easily determine the best and worst stocks in any ETF. To find the strongest stocks in the XLK, we look to the upper right quadrant of the Power Grid (strong Power Gauge stocks in strong industry groups) where we find stocks with the best potential for price gains over the next 3-6 months. There we see stocks like Apple, Broadcom, Cisco, Hewlett Packard (HPQ), Symantec (SYMC) and Western Digital (WDC).
Over time, strong stocks in strong industry groups will outperform the market, whereas weak stocks in weak industry groups will underperform the market.
In addition to buying the XLK on weakness, one stock to buy in the XLK is Broadcom.
Broadcom has a bullish Power Gauge rating that is driven by very strong Expert Opinions, particularly Industry Group strength and strong analyst support. Broadcom is a leading developer of integrated circuits for digital data communications for both home and business. The company enables high speed data transmissions over existing infrastructure that was not architected for that level of data traffic.
This morning’s positive announcement of higher 4th revenue guidance, a 17% dividend increase and a $1 billion buy back is an indication of the improving financial strength of BRCM and should propel the stock to new highs above $45.
Plus:
Chaikin Analytics stock research
Chaikin Portfolio Health Check, in Chaikin Power Suite
NASDAQ Chaikin Power Stock Indexes
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
