Technology securities have been exceptionally hot the last several months. While on the odd day or week technology may underperform other sectors, on the whole, it has been the dominant market leader recently. The iShares US Technology ETF (IYW), which has a broad range of small-, mid- and large-cap technology holdings, is up 38% over the last year. For comparison, the SPDR S&P 500 ETF (SPY) is up 17%. On May 10, IYW hit a new high, closing at $141.83, above its 2000 peak of $139. At the moment there is little evidence of a reversal, but since pullbacks will always occur, waiting for a pullback provides a better trade setup.
In late April the price broke above the top of a range at $136.05. Prices often move back to re-test these breakout areas (but not always). That is one potential area to look for a long if a pullback does develop. In that case, a stop loss can be placed below $134, or ideally below $132.
The Robo Global Robotics & Automation ETF (ROBO) invests in exactly that, robotics- and automation-related stocks. Over the last year, the ETF is up 38%, hitting a new high and closing at $33.93 on May 10. The ETF began trading in late 2014 and has seen daily average volume increase to well over 100K shares in the last few moths.
ROBO broke out of a range in late April, eclipsing the prior high of $32.49. The uptrend has been relentless since, with little in the way of pullbacks. With the price having rallied so much out of the prior base/range already, consider waiting for a pullback instead of getting in now. $32.50, the former breakout area, is one area to watch for a trade, as a stop loss can be placed below $31.22. Given the strong rally, traders can also watch for small consolidations that drift sideways or slightly lower for several days in a row, like what occurred at the start of May. Buy on a breakout of the consolidation, with a stop loss below.
The Global X Social Media ETF (SOCL) invests in social media stocks and is up 47% over the last year. The ETF stalled at $25 in February and March but went vertical in April. On May 10 the ETF hit a high of $27.97 and closed at $26.67. Volume is sporadic, with some days only seeing 10K to 20K, although that number does occasionally spike above 100K. After a near vertical rise, it is possible there could be more upside, but waiting for a pullback or consolidation provides better entry and exit areas from a risk management standpoint. Watch for a consolidation that drifts down or sideways, then buy on a breakout above it. That way, a stop loss can go below the consolidation.
The Bottom Line
These technology ETFs are flying high right now. After near vertical ascents, consider waiting for a pullback or consolidation. The pullbacks or consolidations provide references points for where to enter and place stop loss orders. When markets are this strong, placing a target (profitable exit) may work, but a trailing stop loss is often more effective at capitalizing on big moves as well as protecting profits/reducing losses if the trend reverses. In the social media ETF, also be aware of the lower volume, and adjust position sizes accordingly (if needed).
Disclosure: The author doesn’t have positions in the ETFs mentioned.