So far this year, the leading sector in the S&P 500 has been the technology sector.
The sector, as tracked by the Technology Select Sector SPDR ETF (NYSE: XLK), an exchange-traded fund, is up 18%.
But a subsector of the technology sector recently showed a bearish signal — and this subsector has actually been leading the technology sector as a whole this year.
It’s the semiconductor sector.
I track it with the VanEck Vectors Semiconductor ETF (NYSE: SMH), which tracks 25 of the largest semiconductor-related stocks in the sector … and it has trounced the market this year.
Since the start of the year, the sector has surged more than 19%. Take a look:
The semiconductor ETF (blue line) is at the top, followed by the technology sector (green line).
What’s interesting is the fact that despite leading in performance practically all year, the semiconductor sector peaked on June 8, and since then has lagged the entire market. Here’s another chart of that performance:
I left the technology sector highlighted as well to point out that it hasn’t performed as poorly as its subsector counterpart, the semiconductor sector.
The question now is, which is leading which?
Only time will tell, but divergences like this are usually early warning signs. So if you have made some nice gains in the technology sector this year, you might want to think about taking some profits, at least in the short term.
If the semiconductor sector can climb to new highs, then you will know it’s time to get back in. Until then, it’s better to wait with profits instead of watching them whittle away.
Chad Shoop, CMT
Editor, Automatic Profits Alert