After the Tech Selloff, I See One ETF to Drop, Two to Watch

Yesterday’s breakdown in tech and semiconductors is nothing short of ugly from a technical standpoint on the daily chart. So, let's check on the charts of three exchange traded funds for - semiconductors, financials and energy - to see where the market is going and where to put our money.

I have spoken specifically about the VanEck Vectors Semiconductor exchange-traded fund SMH and the simplicity of following the exponential moving averages (EMAs). My thesis was simple: own the SMH until it breaks the five-week EMA. That 5-week EMA level is $261.67. SMH closed yesterday at $254.22. Without a late-week rally, it will register as a stand aside for me.

In early July, I wrote that “The current setup resembles mid-March, a few weeks before the sharp April selloff. Just something to keep in mind if you have a position or are contemplating buying one.”

History doesn’t repeat, but it does rhyme. That April selloff took us to the 21-week EMA. The current 21-week EMA is $237.45. Again, just something to keep in mind.

The good news is that financials, a recent pivot, continue to perform well. The Financial Select Sector SPDR Fund XLF completed its seventh day in a row in the green yesterday. My first profit-taking level was in the $44 area, and we hit $43.90 on Wednesday. As you may recall from my previous discussions of price targets, I don’t expect them to be exact. It is time to act when we get within a few cents of a round number target.

Even if we pull back a bit today, XLF has had a solid run. I think it will ultimately go higher, but it is overextended in the short term.

Energy continued its run as well, breaking out to levels not seen in two months. The Energy Select Sector SPDR Fund XLE is another name I expect to do well with a Trump victory. I believe we will see XLE over $100 in the second half of 2024, possibly before the end of the third quarter. I want to see the $91-$92 area hold, but I don’t think it is too late to look at XLE or some big energy names to add to the portfolio.

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At the time of publication, Byrne had no positions in any securities mentioned.