Macro Wrap – Tech Sector Struggles

by Enis February 14, 2013 8:04 am • Commentary

Large cap tech continues to be a major laggard in this year’s rally.  It’s particularly surprising since even the boring, defensive sectors of consumer staples and health care are trading near all-time highs.  The market’s rally has been all-encompassing, except for large-cap tech.

The 3 year chart of XLK actually shows a developing head-and-shoulders pattern, which is certainly rare in the current market environment where most stocks are trading above prior highs.  The 3 year chart with the head in red, shoulders in green:

3 year daily chart of XLK, Courtesy of Bloomberg
3 year daily chart of XLK, Courtesy of Bloomberg


A good portion of the weakness has of course been AAPL, but tech weakness is not exclusive to the hardware giant.  Other tech giants well off highs in the past year include IBM, MSFT, T, VZ, INTC, and AMZN.  CSCO has approached a new high, but is pulling off a bit after earnings, and QCOM hasn’t been able to sustain its earnings strength.  GOOG and ORCL are the two exceptions, both at or near 5 year highs.

So it’s not just AAPL.  More likely in my view is the simple nature of investor rotation, as tech’s strength leading the bull market led to a lot of tech overweights in the market in 2012.  That is being corrected for now.  But it’s also a lingering, long-term sign that this current rally has not been a tide strong enough to lift all boats.

Markets overnight:

  • Asia was mixed, with no moves over 1%.  Europe opened flat, but quickly moved into the green, now down almost 1%.  
  • SPX futures are down 0.3%, and there is a slight risk-off tone, with the dollar and Treasuries higher, though commodities are mixed.
  • Jobless Claims released at 8:30 am., no other major data.
  • CSCO trading down 1%, WFM down 6%, Z up 10%, WTW down 15% for earnings.