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While we can envision technology
stocks making another push higher, we sold our position in XLK based on the
four reasons below:
- According
to a recent Bloomberg
story, growth prospects for technology companies may be more limited
than in the past:
U.S. technology companies have pushed their dividends
to the highest level on record, a signal to investors that profit growth in
the industry is slowing. While bulls say bigger dividends are a sign of
confidence after 11 straight quarters of rising earnings in the industry left
companies with ample funds to compensate shareholders, bears say boosting
payouts shows chief executive officers are running out of ways to use their
cash.
- A
negative divergence tells us upside momentum is waning. The last high in
the ratio of tech-to-stocks (XLK:$SPX) came
with negative divergences in both daily RSI and MACD. You can see the
divergences by comparing the slope line A
(price) to the indicators (B and C). Similar bullish divergences
highlighted in July
helped us participate in a recent rally in oil (USO) and oil stocks
(OIH).
- Tech
stocks have come a long way off the early June lows.
- Even
if technology pushes higher, we believe there are better risk-reward
opportunities. We remain bullish,
but materials (XLB), commodities (DBC), and precious metals (GLD) may be
better positioned for what appears to be never-ending central bank
intervention.
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