Based upon the Morgan Stanley Technology Index (MSH), high-tech shares have enjoyed average gains of 19.3%, 11.3% and 15.1% over the last 5, 10 and 15-year periods respectively from mid-August to mid-February. iShares U.S. Technology (IYW) is an ETF whose holdings closely resemble the components of MSH and has historically correlated well with this seasonality. IYW’s top five holdings are Apple (AAPL), Microsoft (MSFT), International Business Machines (IBM), Google (GOOG & GOOGL) and Intel (INTC).
In the following chart, IYW’s closes (solid black line) have been overlaid on MSH’s weekly bars to demonstrate how closely they correlate. MSH’s one-year seasonal pattern appears at the bottom of the chart with its seasonally favorable period highlighted in yellow.
After spending nearly three months (March to May) in a holding pattern, IYW broke out in late May, battled resistance in June (red dashed line) and quickly moved up to resistance in early July, where it continues to hover today. Stochastic, relative strength and MACD indicators are stretched. A better entry point for a new long position would be on a pullback to around IYW’s current 50-day moving average (solid magenta line).
This IYW trading idea first appeared in an Almanac Investor Alert on July 8, 2014 with specific buy limit, stop loss and target suggestions. Not a subscriber? Sign up today for a Free 7-Day Trial to Almanac Investor to continue reading our latest market analysis and trading ideas.
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