The role of the technology sector is becoming increasingly evident as many workers across the globe shift to digital tools to complete their work. Given the panic selling that has dominated the financial markets in recent weeks, many active traders are wondering how much further sectors such as technology could fall before they are able to find support and even possibly move higher again.
Technology Select Sector SPDR Fund (XLK)
Most active traders who want to get a sense of where a certain sector such as technology is headed often turn to analyzing the charts of popular exchange-traded products such as the Technology Select Sector SPDR Fund (XLK). For those who are unfamiliar, the fund comprises 71 holdings from across hardware, storage, software, communications equipment, semiconductors, IT services, electronic equipment, and more. Fundamentally, the holdings of XLK have a weighted average market capitalization of $483.2 million, and the fund has a gross expense ratio of 0.13%.
As you can see from the weekly chart below, the sharp sell-off has sent the price of the fund toward the long-term support of an influential trendline and its 200-week moving average. The nearby support will likely be used as a confirmation of the validity of the primary uptrend and could present a buying opportunity over the weeks ahead.
Microsoft Corporation (MSFT)
As the top holding of the XLK ETF, Microsoft Corporation (MSFT) stock has held up relatively well in recent weeks, and the retracement toward the major support of the dotted trendline could act as a barrier to further declines. Active traders will most likely look to place buy orders near the trendline and place stop-loss orders below $130 in case the underlying fundamentals weaken.
Apple Inc. (AAPL)
With a weighting of 19.57%, Apple Inc. (AAPL) represents the second position in the XLK portfolio. Taking a look at the weekly chart below, you can see that the bears have sent the price of the stock down toward the combined support of two influential trendlines as well as its 200-week moving average. Based on this chart, bullish traders would most likely look to acquire shares as close to the identified support levels as possible in order to maximize the risk/reward of the position. Stop-loss orders will likely be set below one of the noted trendlines, depending on the trader's risk tolerance and investment horizon.
The Bottom Line
The recent sell-off in global markets has put various sectors into focus due to their importance in our day-to-day lives. Technology is one sector that has jumped into the foreground due to increasing requirements for people to work from home. Based on the charts discussed above, approaching support levels of long-term trendlines and weekly moving averages could act as a floor to falling prices and provide the support required to make a move higher again.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.