SMO Exclusive: Strength Report Technology Sector 2024-11-14 Weakened -0.3 to 4.3 Strength Score

Brian Degracia

14 Nov 2024 • 5 min read

Note in the graphic that it is possible for an industry to NOT change strength rating yet still "strengthen" or "weaken" for the week. The reason for this is that underneath the surface there can be movement that is directional but not considered material enough to change the strength rating. Taken in the aggregate over the sub-industries that make up industries and then sectors, this can provide helpful insight into the underlying currents at each level.

Summary

Technology Sector slightly WEAKENED with a 4.3 composite score this week, -0.3 as Electronics (Chips/Semis) weakened one level to 5Average, lowest industry in this sector. The remaining four industries are all tied at 4Strong - Computer Hardware, Computer Software & Services, Internet, and Telecommunications.

Difference This vs. ETFs Analysis

Note this analysis is the same as that used for the SPDR ETFs but the two main differences are:

1. Universe of stocks. The ETFs are the largest capitalization stocks, 500 of them in the 11 sector ETFs. In this analysis, there are approximately 2,700 stocks.
2. Sub-categorization below the market level. The ETF analysis with 500 stocks is limited to sector strengthening and weakening. This analysis with +/-2,700 stocks can be and is segregated into 29 industry groups and in turn 189 sub-industry groups.

There is a Communications ETF (symbol XLC) which is separate from the Technology ETF (symbol XLK). The Technology sector in this analysis includes Telecommunications with Hardware, Software, Electronics, and Internet.

Per Tuesday's ETF strength analysis, XLC/Communications is rated 3Stronger and XLK/Technology is rated 4Strong. This is generally a match for today's broader analysis covering many more stocks.

How would I interpret and use this information?

Recognizing that anything can happen at any time and I will never know the reason why until after the fact if ever, I am looking to give myself the best chances of an individual stock going my desired direction by stacking strength going long or stacking weakness going short, depending on strength/strengthening and weakness/weakening at the stock, sub-industry, industry, sector, and market levels.

Following are summary statements regarding the current environment:

The Market Strength Score is now negative = headwind
Technology sector slightly weakened = headwind
Electronics industry weakened rating to 5Average = headwind
- Broad Line Semis, Integrated Circuits, Memory Chips, and Specialized Semis all weakened rating by one level, and all are now 6Weak or 7Weaker = headwind
- Circuit Boards strengthened one level to 1Stronger, significantly outperforming the other sub-industries = tailwind
Computer Software & Services and Telecommunications were unchanged and remained at 4Strong = tailwind/neutral
- Wireless Communications in Telecommunications strengthened one level to 3Stronger = tailwind

51% of Computer Software & Services industry stocks are rated 1Strongest vs. 7% rated 9Weakest (see page 5.2 below).

Computer Hardware and Internet weakened but not enough to change ratings and both remain at 4Strong = headwind/neutral
- Storage and Networking in Computer Hardware weakened one rating, each to 4Strong = headwind
- Internet Information Providers weakened one rating to 4Strong = headwind

Final Comments

There is absolutely no way of determining how long this environment will last. All one can do is find an objective way of measuring whether any given environment offers headwinds or tailwinds and then act accordingly based on these measurements.

This methodology measures what IS, acts accordingly based on objectively set rules, and never attempts to make predictions. As the market environment facts change based on systematic and repeatable measurement, then so do the appropriate actions.

Details are below shown in a manner not available elsewhere because I created it from scratch to continually answer this question: “Where is there strengthening and weakening in the market at the stock, sub-industry, industry, and sector levels?” Combine this with the top-down Market Strength Score and Sector Risk Gauge to get a key competitive advantage of understanding strength at every level.