Stock Sector Forecast – Technology is Poised to Test Higher Levels

The CBOE Technology Select Technology Index (SIXT) gapped higher on Tuesday and is trending higher. You can see by the upward sloping movement of the 10-day moving average that the trend is moving upward from left to right. Robust earnings from Microsoft last week is helping to buoy the technology index. Historically the technology index has outperformed in February. Low-interest rates generally favor substantial growth from the technology space, which is expected to continue to trend higher.

Seasonal Performance

Historically, the SIXT outperforms in February. Over the past decade, the technology sector has increased in value 70% of the time for an average gain of 2.6%. During the past 15-years, the returns are less pronounced. During this period, the technology sectors have increased in value 60% of the time for an average gain of 1.2%.

Technical Analysis

The gap higher in SIXT follows a robust rebound on Monday after the technology sector finished January on a sour note. The index price continues to hover near the 10-day moving average and has not strayed far from this median. Short-term support on the SIXT is seen near the 10-day moving average at 1,334, and then the 50-day moving average coincides with an upward sloping trend line that comes in near 1,287. Short-term resistance is 1,358. The profit target is the upper end of a new channel that was created when the SIXT broke out in December. The channel range is $184, which would place the profit target level for the SIXT near 1,467. You can see that after breaking out in December, the SIXT testing the upper end of the channel three times but was unable to push through support. This information should tell you that buyers at the bottom end of the channel are looking for prices to test higher levels.

Short-term momentum on the technology ETF is positive. The fast stochastic, which is a momentum oscillator, generated a crossover buy signal. The last crossover buy signal caused a minor rally that pushed prices up to the range’s top end.

Medium-term momentum is about to turn positive. This change in velocity is because the MACD (moving average convergence divergence) index is poised to generate a crossover buy signal. The crossover buy signal is generated when the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is also above to generate a crossover buy signal. The histogram is relatively flat so any momentum could be short-lived.

The Bottom Line

The SIXT trend is upward sloping, as the index hovers around the 10-day moving average, which continues to grind higher. Prices have tested support levels multiple times over the past weeks after breaking out and unable to push lower. Momentum is positive, and prices are likely to test the upper end of the current range. The target is 1,467. The seasonals are also positive, as the technology sector generally outperforms in February. Look for the SIXT to test higher levels.