Seasonal Trends, Technology, And A Shift In The Market

One of the models I use in the ARTAIS strategy is based on historical trends and invests in specific sectors when they have shown higher than average historical growth.

This year, however, I have been sitting on the sidelines during a historically strong time of the year for technology.

The ARTAIS model’s historical component calls for the portfolios to be invested in technology during the month of December. With a decline in Apple’s stock price and fears of the “Fiscal Cliff”, removing as much risk from the portfolios is wise – therefore the historical portion of the portfolios remain in cash.

Golden Cross In Technology

In addition, there is one chart that is still making me very cautious regarding the technology sector for the first half of 2013:

“XLK” (The Technology Select Sector SPDR) is still in a multi-month downtrend which has been confirmed by a golden cross pattern.

For those who are not familiar with the Golden Cross pattern, it is a very simple stock market pattern (followed by many in the financial industry) that occurs when a short-term moving average (such as the 50-day moving average) breaks above its long-term moving average (such as the 200-day moving average). This pattern is typically an indication that investors have dramatically changed their viewpoint on the current trend.

Going forward, investors need to be careful with their exposure to the technology sector until a defined uptrend is established.

Technology Weighting In The S&P 500 Index

A continued decline in the technology sector will have an impact on the over market as well. Currently, technology is the largest sector in the S&P 500 index:

Which is led by Apple:

If the tech sector doesn’t recover quickly, it may be an indication that investors are starting to reallocate their tech heavy portfolios into other asset classes.

Is Money Moving Back Into Financials?

One data point that I find rather interesting is that while the technology sector is declining, financials (which are the second largest component of the S&P 500) have been rising:

 

 

Technology Sector vs Financial Sector

 

This divergence in two sectors that have been correlated for much of this year, may be a theme for 2013 as investors may be shifting from growth to value based portfolios.

Keep an eye on these two sectors into the new year as this divergence may be fiscal cliff related (taking profits off the table) or we may be seeing the early signs of a shift in market trends.

 

 

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