This past week was brutal for technology stocks and by association the biggest technology ETFS as well.
The Technology laden QQQ - Nasdaq 100 ETF - slumped 1.5% on huge, above average volume and more importantly closed below the key 20-week SMA. XLK - SPDR Technology ETF - also exhibited similar behavior.
To be sure, the Technology Sector has been experiencing plenty of trouble in recent weeks. Actually, technically weaker action was noticed the week prior to this when QQQ logged a BIR Rating of -58 on huge, above average volume. From that perspective, this week wasn't all that traumatic.
The two important technology leaders in recent times - Apple and Google - are showing perceptions of struggling growth and technology investors will have plenty to worry about if indeed these perceptions come true. Apple's iPhone 5 was in no way path breaking in comparison to its close elder sibling iPhone 4S. Apple has to come up with a stronger tech offering either in the cloud or mobile space to sustain this kind of explosive growth. Apple, to be sure, has plenty more global markets to conquer and it may have to revise its pricing to the downside to attract additional global demand. This could alter the dynamics of mobile phone pricing across the board. If Samsung and other companies can come up with very compelling mobile phones and tablets, Apple can be in some kind of trouble.
Google is struggling to get more growth in its flagship and core ad business. Google's foray into other non-search areas and social media has not been as successful and its dominant position still remains in search and advertisement built around it. A shake-up in this space can be more detrimental to Google.
Investors appear to be sensing these potential fall outs as they look to take some money off the technology space.
From a technical standpoint, QQQ is now inching toward its long term 40-week SMA whose trend is still positive. The 40-week SMA will soon become a very important support area for this ETF and if it is able to hold this, coinciding with the onset of post-election and holiday cycles, probably technology can continue to attract more bulls.
We think it is too early to write-off the QQQ and XLK despite the near term uncertainties troubling the big technology giants.
Good Luck and Happy Trading!