Technology companies have been the darlings of the market for many months now. Based on the charts discussed below, it appears that this theme is likely to dominate the market for many more months to come. We will analyze charts of the widely followed Technology Select Sector SPDR Fund (XLK) and two of its top holdings to determine how traders will be looking to position themselves over the weeks and months ahead.
- The tech sector has been in the spotlight for many months, and chart patterns suggest that these themes will continue to dominate over the weeks and months ahead.
- Nearby support levels are creating clear guides for active traders looking for where to place buy and stop orders.
Technology Select Sector SPDR Fund (XLK)
As discussed above, active traders who are interested in niche sectors often turn to exchange-traded funds such as the Technology Select Sector SPDR Fund. Fundamentally, this fund has $39.2 billion under management and comprises 75 holdings from across the U.S. tech sector. The fund is nicely allocated between software (32.31%), technology hardware/storage (23.63%), semiconductors (19.38%), IT services (19.19%), and other niche industries.
Looking at the chart below, you can see that the fund has found support near an influential trendline on several occasions since the recovery from the March lows. The recent bounce off the combined support of the dotted trendline and its 50-day moving average pushed prices to all-time highs, and the momentum is clearly in the favor of the bulls. Based on the pattern below, traders will likely maintain a bias to the upside and utilize the nearby support as a guide for placing buy and stop orders.
Apple Inc. (AAPL)
As the top holding of the XLK ETF and dominant player in the global technology sector, Apple Inc. (AAPL) will likely remain as a top focus of active traders over the weeks ahead. Looking at the chart below, you can see that the 50-day moving average and dotted trendline have consistently provided traders with lucrative entry points. From a risk-management perspective, buy orders will likely be placed near current levels, and traders will likely look to set stop-loss orders just below $129.69 or $125 to protect against a sudden shift in sentiment or underlying fundamentals.
Microsoft Corporation (MSFT)
Another top holding of the XLK ETF that will likely remain on the radars of active traders over the weeks ahead is Microsoft Corporation (MSFT). Looking at the chart below, you will notice that the share price has recently broken beyond the resistance of an ascending triangle pattern. This common continuation pattern is often found within a defined trend, and the move above the upper trendline is often the sign that traders use to mark the beginning of the next leg higher. Based on this pattern, traders will likely look to buy as close to $230 as possible and then place stop-loss orders below $222, $215, or $207.54, depending on risk tolerance and outlook.
The Bottom Line
Tech companies have been in the spotlight for many months, and based on the patterns discussed above, it appears that this will continue to be the case for quite some time. Breaks beyond key levels of resistance combined with nearby support from trendlines and moving averages are combining to create well-defined setups for those looking for trading ideas.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.