Macro Wrap – Tech Sector Major Laggard

by Enis December 14, 2012 7:25 am • Commentary

The tech sector is the only major sector that is trading below its 200 day moving average (utilities is as well, but I consider that a minor sector).  The XLK technology sector ETF actually tried a couple times in the past 10 days to break above the 200 day, but looks to be rejected:



The technology sector’s key position as the leader of the 3.5 year bull market cannot be understated. I highlighted the importance of technology to the overall market with a CotD post about 2 months ago.  Since that post, the market had a quick selloff and a rapid rally back, but technology has not been able to regain its former mojo.

When the leader of the bull market loses its perch, it historically signals the buying pressure coming to an end.  I continue to believe that to be the case with this market.  Moreover, the former leader on the upside often becomes a leader on the downside, so watch for continued tech weakness to signal lower prices for the market overall.

Markets overnight:

  • China was the talk of the markets.  The Shanghai Composite rallied 4.3% on steady buying throughout the day (the index actually opened close to flat).  That is its largest percentage move higher in one day since Oct. 2009.
  • Slightly better than expected Chinese flash PMI was one catalyst, though it feels more like the Shanghai catching up to global indices, as it’s still down 2% on the year after the rally.
  • The rest of Asia was mixed.  Europe has traded close to flat the whole session, and SPX futures are up 0.2%
  • The dollar and Treasuries are close to flat, and commodities are broadly stronger, though gold and silver continue to lag.
  • CPI data released at 8:30 am EST, Preliminary U.S. PMI at 8:58 am, and Industrial Production at 9:15 am