Technology Will Lead Us Higher

12/10/2015 7:00 am EST

Focus: ETFS

Gregory Harmon, CMT

Founder and President, Dragonfly Capital Management

On Tuesday, Greg Harmon, of Dragonfly Capital, noticed that a scan he uses showed16 stocks and 11 of them were in the technology sector. Looking broadly at the space from a technical perspective, Greg shares four pieces of information to watch.

I tossed up this scan Tuesday night and it showed something startling. The scan looks for stocks with large valuations that have good technicals, momentum, and fuel from short interest in a proprietary combination. Tuesday night it showed 16 stocks and 11 of them were in the technology sector. Technology stocks have had a very prominent place in the scan over the last three weeks but never this type of sweeping dominance.

chart
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Looking broadly at the sector, the Technology Select Sector SPDR ETF, (XLK), shows a good technical set up beyond those 11 names. The chart below gives four pieces of information to watch. First is the Deep Crab harmonic pattern. What is important there is that it has not finished playing out yet, with a Potential Reversal Zone (PRZ) above at 49.47.

chart
Click to Enlarge

The second is the Golden Cross, where the 50-day SMA crosses up through the 200-day SMA. This is a bullish signal and it occurred right around Thanksgiving. Third is the price action itself, making a series of higher lows against resistance at 44.60. Finally the momentum indicators are in bullish ranges with the RSI running sideways and the MACD a turn higher away from being the possible catalyst to renewing the move higher.

By Greg Harmon of Dragonfly Capital

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