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Apple Bounce Benefits Technology Sector!

  • Written by Syndicated Publisher No Comments Comments
    May 13, 2013

    Apple (AAPL) has been rallying since it hit a 52-week low in April, a fact that has benefited the broad market in general and the technology sector in particular. It also gives us another opportunity to demonstrate the disadvantages of cap-weighted indexes compared to their equal-weighted counterparts.

    (This is an excerpt from recent blogs for Decision Point subscribers.)

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    Below we have aligned charts of AAPL, the Technology SPDR (XLK), and the Equal-Weighted Technology ETF (RYT). First we note the decline from mid-September to mid-November, which coincided with a broad market correction. While stocks in general declined, the technology sector really got hammered because of AAPL.

    Screen shot 2013-05-10 at 11.39.54 AM

    After the November low, the market began to rally but Technology suffered under the continued decline of AAPL; however, note that RYT (equal-weighted) exceeded its September high in January, but XLK (cap-weighted) did not rally past its September high until this week. More important, during that period RYT had nearly double the gains of XLK.

    Conclusion: Conservatively speaking, sector exposure is usually best accomplished through a sector index rather than individual stocks, because risk is spread across many stocks. Equal-weighted indexes spread risk even farther, since no individual stock can influence the index more than other components. This is not to say that equal-weighted indexes are always the best choice, but it is a good place to start looking.

    Images: Flickr (licence attribution)

    About The Author

    Carl SwenlinCarl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.