A Quick Look at New Highs for XLK Technology Sector

Dec 22, 2009: 12:16 PM CST

The XLK Technology Sector SPDR is making fresh new 2009 price  highs above the prior ‘range resistance’ boundary area, and that is a bullish sign for the broader market.  Let’s take a quick look at the daily and weekly chart of the XLK.

The S&P 500 has been caught in a tight trading range since mid-November, but the technology sector ETF just broke above its consolidation range boundary at the $22.40 overhead resistance area.

Breakouts from consolidation areas can lead to continuation moves to the upside, so we need to keep watching this development closely.  Any pullback under $22.30 and especially under support at $22.00 would argue that a “Bull Trap” breakout occurred.

What might be overhead levels to watch in the form of potential resistance areas or price targets?  Let’s turn to the weekly chart.

Price is ‘riding the upper Bollinger Band’ both on the daily and weekly frame, but that doesn’t mean price has to fall – look back at how long price has been situated above the upper Bollinger Band.

This is a good example of why technical indicators have strengths and weaknesses – Bollinger Bands send the best signals in trading ranges but send false signals during strong trend moves like almost all of 2009 has been.

Price has just broken above the 61.8% Fibonacci Retracement from the 2007 high to the November 2008 and March 2009 low – this price level resides at the $22.10 level.

Price is in a very bullish position as long as it remains above this level.

A potential target includes the prior price high from August 2008 at the $23.35 level, and then if price rises above that, then look for a move to the $25.00 level, which is the May 2008 prior price high.

As an aside – worth mentioning – there is a persistent negative volume and negative momentum divergence as shown on the weekly (as well as daily) chart, but that same signal is present in the other Sector SPDR ETFs as well as the S&P 500 itself.  While a non-confirmation, it does not argue that price must reverse.

Many traders look to technology stocks to give clues about the general direction of the broader market.  If this remains the case, and if XLK (technology) continues to rise, it would argue that the S&P 500 would also be breaking to new 2009 highs… as 2009 winds down and turns into 2010.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

4 Comments

4 Responses to “A Quick Look at New Highs for XLK Technology Sector”

  1. pipercolt Says:

    corey we've been looking at this divergence for 2 months now. NQ is in a tight range here. Is it possible that the NQ has memory of its former highs of 5000 and could it retrace at least 50% of it. It would take us to a double top of 2007

  2. Corey Rosenbloom, CMT Says:

    Piper,

    That's a very good point – I need to do a monthly Fibonacci grid of the NASDAQ to show the retracement lines.

    2000 for the NASDAQ was a rare time and it could take years to rally back to those 'unsustainable' highs, but certainly a half-way point is not out of the question.

    I'll have to take a closer look at this. Thanks!

  3. pipercolt Says:

    corey we've been looking at this divergence for 2 months now. NQ is in a tight range here. Is it possible that the NQ has memory of its former highs of 5000 and could it retrace at least 50% of it. It would take us to a double top of 2007

  4. Corey Rosenbloom, CMT Says:

    Piper,

    That's a very good point – I need to do a monthly Fibonacci grid of the NASDAQ to show the retracement lines.

    2000 for the NASDAQ was a rare time and it could take years to rally back to those 'unsustainable' highs, but certainly a half-way point is not out of the question.

    I'll have to take a closer look at this. Thanks!