The technology sector’s technical picture has been slowly improving as we near the end of October. As I mentioned in yesterday’s Sector Watch note, the rotation away from value areas of the market and back into tech is beginning:
AI Theme Rotation
Within the AI theme, a similar picture is appearing. The majority of the ARTAIS AI theme subsectors are seeing improving rotation. Momentum and relative strength vs. the S&P 500 index are improving - but we are still in the early stages of this rotation:
While it is a good sign to see this rotation begin, it remains to be seen whether this is the start of a longer uptrend or a short-term rally within a downtrend.
Most Names Are Still Below the Cloud
Most subsectors (I’m using ETFs as proxies) are still trading below the Ichimoku cloud and showing poor momentum:
Many subsectors show a similar pattern: a rise from support that is now nearing cloud resistance:
Global X Defense Tech ETF (SHLD)
Semiconductors (SOXX)
Midterm Rally?
As we get closer to the midterms, I am watching to see if the group can break above the cloud and resume the AI-theme uptrend.
As I have noted in the past, the typical post-midterm pattern has been favorable for US stocks. A break above the cloud in AI-themed stocks would be a good indication that the midterm pattern is playing out this year.
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