Friday, March 09, 2007

Where's The Flow? XLK And Technology Stocks

In recent posts, we've looked at Adjusted Relative Dollar Volume Flows for three market sectors: materials, financial, and energy. We've also seen how dollar volume flows capture sentiment within the S&P 500 stocks. Now we ask the WTF question about the technology sector: Where's The Flow among the stocks in this sector? Representing technology, we have the XLK Spyder ETF for tech stocks. As with the other sectors, I have taken five individual stocks that dominate that sector ETF to assess Dollar Volume Flows: MSFT, INTC, IBM, CSCO, and VZ.

Once again, we have the blue line representing the price of the ETF going back to January, 2004, and we have the pink line representing the 10-day average Adjusted Relative Dollar Volume Flows for the five tech issues. When we have flows above the horizontal red line, it means that we're seeing above average dollar flows into the sector; when we have flows below the red line, it means that we have below average dollar flows.

Patterns that we've seen in the sector data to date seem to hold up for the technology stocks. Specifically, we can see that peaks and troughs in dollar flows tend to precede intermediate-term price peaks and valleys. We can also see that dollar volume flows for the technology issues have been in decline well before the recent market drop. These divergences seem to be common as part of topping processes across sectors and markets.

Finally, notice a pattern that we've seen among the financial and energy stocks: since the recent market decline, dollar volume flows have continued at subnormal levels. In fact, eight of the last ten trading sessions have seen below average dollar flow into the tech issues. What that tells us is that, once again, traders are not leaping to pour money into technology stocks, even at these lower prices. Until we see evidence of large market participants returning to the market and putting their capital to work buying these shares, the tech sector is vulnerable to further selling.