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The Emergence of New Technology Sectors

The Nasdaq Composite Index and many technology names peaked on 2/16/21 (COMPQ – 14,175.12). Since then, the technology sector has struggled to keep up with its equity counterparts, such as Dow Jones Industrial Average (INDU +9.86% from 2/16/21 to 6/7/21) and the S&P 500 Index (SPX +7.47%), which traded to new all-time highs and are now closed to reaffirming their respective record highs.


A deeper dive into the ETF markets also shows only a few technology-related ETFs are trading above their respective mid-February highs. As we enter the second half of the year, many investors will begin to formulate their second half strategies.


The question remains – will Technology stocks continue to lag their peers, or will specific technology sectors and stocks emerge as market leaders during the next six months?


The following indexed relative strength chart analysis shows the performances of 10 popular technology ETFs, including QQQ, XLK, FIVG, IGN, IGV, SOXX, CIBR, FDN, FINX, and IPAY.

Only 4 of the ETFs recorded positive gains from the mid-February 2021 peak. The ETFs showing gains over this timeframe is iShares North American Tech-Multimedia Networking ETF (IGN +4.02% from 2/16/21 to 6/7/21), Defiance 5G Next Gen Connectivity ETF (FIVG +2.77%), Technology Selector Sector SPDR Fund (XLK +1.55%), and Invesco QQQ Trust (QQQ +0.44%). Over the past 78-days, the Nasdaq Composite Index (COMPQ) declined 11.18%. The biggest loser is the Global X FinTech Thematic (FINX -13.73%).


From a technical perspective, IGN and FIVG have broken out of bullish triangle (ascending) patterns, suggesting the emergence of leadership roles during the second half of the year. The other two outperformers, XLK, and QQQ continue to strengthen as they near their respective late-Apr 2021 highs. Convincing technical breakouts above their prior highs would result in these two ETFs joining IGN and FIVG as the technology leaders.

Attached below are the indexed relative strength analysis and the charts of the four potential leadership ETFs for the second half of the year.



Source: Charts courtesy of StockCharts.com

Source: Charts courtesy of StockCharts.com

Source: Charts courtesy of StockCharts.com

Source: Charts courtesy of StockCharts.com

Source: Charts courtesy of StockCharts.com

Source: Charts courtesy of StockCharts.com

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