Every market needs a sector or sectors to lead it (up or down) and every investor should know what they are.
(This is one of the points from William O’Neil’s How To Make Money In Stocks that I’ve really taken to heart and found essential – O’Neil is the founder of Investor’s Business Daily).
The leaders of the bull market that began in October 2002 have been energy and financials.
But with rising interest rates and problems with subprime mortgage bonds, financials have been hurting lately.
Tech, on the other hand, has been gaining strength recently. Here’s a chart of tech (blue – XLK) versus financials (orange – XLF) over the last month.
Did anybody notice that while the overall market was flat today (S&P +.03%), the Nasdaq was up (+.44%)?
In fact, it’s three very popular, very hot, tech stocks that are driving the Nasdaq: Apple, Google and Research in Motion – accounting for more than a third of the Nasdaq 100’s (an index of the 100 biggest Nasdaq stocks) gains since early March (“Can Tech Pick Up Slack In Stock Market?” (subscription required), Scott Paterson, The Wall Street Journal, Thursday July 5).
If they become exhausted, so could the entire market.
UPDATE (Mon 7/9, 10:00pm PST): A couple weeks ago Michael Panzer, author of Financial Armageddon and a blog by the same name, made the same observation about a few tech stocks driving the Nasdaq higher. Barry Ritholtz of The Big Picture excerpts something he wrote (which I can’t find) which includes a nice list of tech stocks that have been surging.