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Has Tech Run Its Course?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Gillie

NEW YORK ( ETF Digest) -- The technology sector tends to perform best in the second half of the year -- largely due to back-to-school sales, holiday purchasing and corporate end-of-year expenditures.

This is certainly not to say that tech can't perform well in the first half of the year, but most likely it will not do much more than follow the overall market trend.

The S&P 500 is showing signs of exhaustion in its rally from December. All of the major tech-sector exchange-traded funds are overbought, more so than the S&P 500 ETF (SPY).

You can't look at tech without looking at Apple (AAPL - Get Report).

After all, the iPhone and iPad maker has 15.7%, 17.7% and 15.3% weightings, respectively, in the Select Sector Tech SPDR (XLK), iShares Dow U.S. Tech (IYW), and PowerShares QQQ Trust 1 (QQQ).

Yes, the QQQ, which tracks the Nasdaq 100, is that heavily weighted in AAPL, and nine of its top 10 holdings are in the tech sector. Therefore, it behooves us to take a quick look at AAPL before we examine our tech-sector ETF.

Most noteworthy is that AAPL recently reported a stellar quarter and experienced a gap up overnight from $420 to $450. However, it hasn't gained a new high since then and is looking back on a significant gap. We saw this same gap up in October, which was followed by selling. Additionally, AAPL is at the upper trend line resistance and 0.32% from the 52-week high resistance. With diminished volume, a breakout above these resistance levels is unlikely.

The Select Sector Tech SPDR is the most highly traded of the tech-sector ETFs.

The "top holdings" listed in the table above make up almost half of the holdings in XLK. All of these companies released earnings from Jan. 19 to Jan. 26, meaning there's little left in XLK for a fundamental upside surprise.

Turning to XLK's performance, its gains over the past month were only slightly larger than its gains for the entire year. Looking at the major stock market sectors (tech, financials, energy, consumer and materials) tech is the most overbought with the exception of materials (largely due to swings in precious metals). Tech is due for a pullback.

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SYM TRADE IT LAST %CHG
XLK $42.11 -0.85%
QQQ $106.71 -0.69%
IYW $106.21 -0.78%
AAPL $125.01 -0.63%
FB $78.10 0.70%

Markets

DOW 17,841.98 -86.22 -0.48%
S&P 500 2,080.15 -9.31 -0.45%
NASDAQ 4,919.6440 -19.6830 -0.40%

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