SMO Exclusive: Strength Report Technology Sector 2024-11-21 Unchanged at 4.3 Strength Score

Brian Degracia

21 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 unchanged with a 4.3 composite score this week.

Compare this to

All three sector/industry groupings are unchanged, with the Financial sector more than one full strength rating ahead of the other two.

Within Technology, Electronics (Chips/Semis) remained the weakest industry at 5Average. The remaining four industries remained 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.

Current Market and Sector Environment: HEADWIND/Neutral

MARKET: The Market Strength Score is currently negative = HEADWIND
- By this measure it is not time to aggressively be putting on new long positions. Better entry points may lie ahead. While I am not a stickler for pennies, over many trades and many months these will add up.
SECTOR: The Technology sector was flat for the week = Neutral
- If at all interested in positions in this sector, it is better to go where there is strength/strengthening - as reflected by price. This Stock Market Organizer methodology explicitly reveals this.

Current Industry/Sub-Industry Environment: mixed

Electronics industry strengthened but not enough to change rating and stays at 5Average = headwind/neutral
- Memory Chips and Specialized Semis both strengthened rating by one level (this outweighs that they are only 5Average and 6Weak, respectively) = tailwind
- Circuit Boards weakened one level to 2VeryStrong = headwind
Computer Hardware and Computer Software & Services were unchanged and remained at 4Strong = tailwind/neutral

51% of Computer Software & Services industry stocks are rated 1Strongest vs. 6% rated 9Weakest (see page 5.2 below).

Internet strengthened but not enough to change ratings and remains at 4Strong = tailwind/neutral
Telecommunications weakened but not enough to change ratings and remains at 4Strong = headwind/neutral
- Wireless Communications weakened one strength 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.