Getting Technical.Com

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Getting Technical.Com

Professional Market Technicians

Editor Bill Carrigan, CIM

Bi-Weekly Update May 4, 2011 GT1352 TSX Comp 13540 DJII 12709

Very Long Term Analysis - Technology

The long 1980-2000 secular advance in the English speaking stock markets equities was driven by the “new economy’

technology boom. Ground zero was In November, 1971, when a company called Intel publicly introduced the world's first single chip microprocessor, the Intel 4004. In 1974, (at the peak of the Arab Oil Embargo) Dr. Gary A. Kildall, while working for Intel Corporation, created CP/M as the first operating system for the new microprocessor. The first personal computers appeared in the early 1980’s. Some early innovators were Apple, Tandy, Compaq and IBM. MS-DOS grew from a 1981 request by IBM for an operating system for its IBM PC range of personal computers – introducing a youthful Microsoft. The 1990’s introduced the Internet and the first .com mania which ended with the Y2K fiasco and the .com bubble of 2000.

The technology bubble of 2000 introduced the current secular bear market in global equities that is just completing the final of 3-cycles – see chart above.

The Next Big Thing

The next big thing is a key “must know” for long term investors who wish to make above average market returns without excessive trading in and out of volatile stocks. The next big thing is a pending dominant theme that can persist for at least 16 years. The dominant theme will drive the beneficiaries upward to all time highs and for the most part will have long bull cycles interrupted by short flat bear cycles.

Some past dominant themes were the Nifty Fifty of the 1950’s and 1960’s. The mid to late 1970’s introduced the modern economy or first technology boom of the English speaking countries. The mid 1980’s introduced a parallel boom in the financial services sector – so for twenty years from 1980 to 2000 all you had to do was to own technology and bank stocks. Some recent false booms were infrastructure and alternate energy.

Our chart is about 15-years of the technology weighted Nasdaq Composite that clearly displays the first technology bubble that was confined within the English speaking countries. The 2000 – 2010 period is a 3-cycle secular bear which is now almost completed. Yesterday the Nasdaq jumped to a 10-year high as U.S. stocks rallied on Wednesday after Fed Chairman Ben Bernanke's first-ever press conference. This is significant technically because a second “echo” or global technology boom is now just getting underway in the emerging markets. The Nasdaq is our new dominant theme or the “next big thing.”

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Broad Technology ETFs List 28-Apr-11

Broad Global Technology ETFs

SPDR S&P International Technology Sector IPK iShares S&P Global Technology IXN

Broad US Technology ETFs

iShares S&P North Amer Technology IGM iShares Dow Jones US Technology IYW SPDR Morgan Stanley Technology MTK

PowerShares QQQ Trust QQQ

Technology Select Sector SPDR XLK

Technology Sub-Sector ETFs

Software ETFs

iShares S&P North Amer Tech-Software IGV PowerShares Dynamic Software PSJ

Software HOLDRs SWH

Hardware ETFs

Internet Architecture HOLDRs IAH

Networking ETFs

Broadband HOLDRs BDH

iShares S&P North Amer Tech-Multimd Ntwk IGN PowerShares Dynamic Networking PXQ

Semiconductors ETFs

PowerShares Dynamic Semiconductors PSI

Semiconductor HOLDRs SMH

iShares PHLX SOX Semiconductor Sector SOXX SPDR S&P Semiconductor XSD

Internet and Technology Services ETFs

B2B Internet HOLDRs BHH

First Trust Dow Jones Internet Index FDN

Internet HOLDRs HHH

Internet Infrastructure HOLDRs IIH

Nanotechnology ETFs

PowerShares Lux Nanotech PXN

Big Cap Technology Select Sector SPDR (XLK) Top 25 Components by % Weight

Top 25 by weight 28-Apr-11 %Weight

Apple Inc. AAPL 12.20

International Business Machines IBM 7.91 Microsoft Corp. MSFT 7.31

AT&T Inc. T 6.99

Oracle Corp. ORCL 5.36

Google Inc. Cl A GOOG 5.19

Intel Corp. INTC 4.13

Verizon Communications Inc. VZ 4.08 Cisco Systems Inc. CSCO 3.69 Qualcomm Inc. QCOM 3.57 Hewlett-Packard Co. HPQ 2.77

EMC Corp. EMC 2.26

Texas Instruments Inc. TXN 1.61

eBay Inc. EBAY 1.52

VISA Inc. Cl A V 1.44

Corning Inc. GLW 1.27

Automatic Data Processing Inc. ADP 1.05 MasterCard Inc. Cl A MA 1.04

Dell Inc. DELL 1.01

Cognizant Technology Solutions. CTSH 1.00 CenturyLink Inc. CTL 0.97

Yahoo! Inc. YHOO 0.90

American Tower Corp. Cl A AMT 0.82 Applied Materials Inc. AMAT 0.81 Juniper Networks Inc. JNPR 0.80

Total% 79.70

The broad Nasdaq Composite is a stock market index of the common stocks and similar securities (e.g. ADRs, tracking stocks, limited partnership interests) listed on the NASDAQ stock market, meaning that it has over 3,000 components. It is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies. Since both U.S. and non-U.S.

companies are listed on the NASDAQ stock market, the index is not exclusively a U.S. index.

The best way to get exposure is the broad PowerShares QQQ Trust (QQQ)

Nasdaq vs S&P500

The Nasdaq has been a poor relative perform vs. the S&P500 from the peak of 2000 on to the 2007 peak. The Nasdaq signalled a return to relative out perform when it posted a higher low vs. the S&P500 in early 2009. See the up arrow chart left Note also the recent highs relative to the respective 2007 peaks – unlike the S&P500, the Nasdaq has retraced all of the 2007-2008 losses. The Nasdaq relative perform vs the S&P500 should accelerate through 2011 and 2012.

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Risk Avoiders - LONG TERMnew for Q2 of 2011 – we see the U.S. sectors sorted by monthly change at March 31, 2011 - the best diversification would be exposure to the BOLD sectors

Monthly2nd Dimension First Derivative Second Derivative

Sector rank Mar ‘11 1-Month Trend

Rank Change

SPDR-Energy XLE 36.15 9.69 Advancing SPDR-Health Care XLV 6.36 4.79 Advancing

SPDR-Materials XLB 19.88 2.71 Advancing

SPDR-Industrial XLI 18.99 2.12 Advancing

HOLDRS Telecom TTH 19.87 1.80 Advancing

SPDR-Consumer Staples XLP 8.17 1.72 Advancing

SPDR-Technology XLK 15.50 1.45 Advancing

SPDR-Utilities XLU 7.75 1.13 Advancing

SPDR-Financial XLF 6.27 1.00 Advancing

SPDR-Consumer Discreti XLY 15.66 -0.59 Stationary Topping ProShares Short S&P500 SDS -16.65 -1.54 Declining

There is less risk in the smaller 1-Month change numbers

The NASDAQ-100 Trust Series 1 (QQQ) exchange-traded fund, sponsored and overseen since March 21, 2007 by Invesco through PowerShares, trades under the ticker NASDAQ: QQQ. On December 1, 2004, it was moved from the American Stock Exchange where it had the symbol QQQ to the NASDAQ and given the new four letter code QQQQ. On March 23, 2011, Nasdaq changed its symbol back to QQQ.

During the period it traded as QQQQ, it was sometimes referred to as the "Cubes", or "Quad Qs". In 2000, it was the most actively traded security in the United States, and hit an all-time split adjusted intra-day trading high of $120.50 on March 24 of that year, but has since dropped to being within the top five after other stocks and ETFs such as the Standard & Poor's Depositary Receipts. On July 17, 2007, the ETF closed above $50 for the first time since early 2001. After reaching a peak of $55.07 on October 31, 2007, the Qs succumbed to a wider financial crisis along with a decline in technology spending and plunged towards a November 21, 2008 intra-day low of $25.05.

Last week the Qs traded at an all time high of $59.34

The SPDR XLK vs. the QQQ

We prefer the QQQ because it is a pure technology play. The SPDR Technology (XLK) has some exposure related to telecommunication services

Note the long established relative out perform of the QQQ over the XLK – see chart lower left

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Very Long Term Analysis – cont.

The Internet commerce space is a leader – note the bottom posted in late 2008 almost sis months ahead of the broader market.

The Internet HOLDRS (HHH) is heavy weighted in consumer cyclical web based enterprise

Company Symbol % Assets Amazon.com, Inc.AMZN 41.71

eBay Inc. EBAY 19.32 priceline.com Inc PCLN 13.13 Yahoo! Inc. YHOO 11.21 Time Warner Inc. TWX 6.39 Time Warner Cab TWC 3.72 TD Ameritrade AMTD 2.46 EarthLink, Inc. ELNK 0.71

Although compelling we would avoid the sector in favour of the broader QQQ

These are the very long term (24 months) cycle and momentum placements for the U.S. sectors – sort on 1-Month Change S&P500 Index April 18, 2011 Sector Return 1-Month Trend

Sector Weight Y-T-D Change

Energy 12.90% 12.54% 9.69 Advancing

Health Care 11.20% 7.37% 4.79 Advancing

Materials 3.60% 2.84% 2.71 Advancing Industrials 11.10% 5.88% 2.12 Advancing Telecom Svc 3.00% 1.44% Cons Staples 10.60% 28.52% Info Tech 17.90% 2.62% 1.45 Utilities 3.20% 1.56% 1.13 Advancing Financials 15.70% 0.13% Advancing

Cons Disc 10.60% 4.22% -0.59 Stationary Topping

Total 100.00%

1.80 Advancing

1.72 Advancing

Advancing 1.00

There is less risk in the smaller

1-Month change numbers

This important sector has signaled a high risk buy signal at February 28, 2011 and is must own sector - Important – this group has exceeded the 2007 price peaks

Summary and Analysis:

We assume the technology boom to be broad based and so would not engage in stock picking The best offering appears to be the

PowerShares QQQ Trust (QQQ)

Canadian Dollar Accounts – enjoy via the BMO NASDAQ 100 Equity Hedged to CAD Index ETF (ZQQ) or the iShares S&P/TSX Capped Information Technology Index Fund (XIT)

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Getting Technical.Com is published by Getting Technical Information Services Inc. an independent

market research company. The opinions therein should not be construed as a solicitation or offer to

buy or sell the securities mentioned. Getting Technical assumes no obligation to update the information or advice on any further developments

relating to these securities. GT, its officers and directors may have positions in any securities mentioned in this market letter. GT is not a financial

advisor. GT may receive remuneration from securities industry professionals for independent

research services. The opinions are based on technical analysis and more information should be

obtained before making an investment decision.

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The Leading Sub-Groups

PowerShares Dynamic Networking (PXQ)

This high energy sub-sector has been leading the broader technology space since the bear market lows of 2008

The top weighted components

Company Symbol % Assets

Riverbed Technology, Inc. RVBD 7.31 Motorola Solutions, Inc. MSI 5.97 Citrix Systems, Inc. CTXS 5.27 Broadcom Corporation BRCM 5.24 Symantec Corporation SYMC 5.20 Finisar Corporation FNSR 4.88 Juniper Networks, Inc. JNPR 4.88 Amphenol Corporation APH 4.87 Vmware, Inc. Common VMW 4.85 QUALCOMM Incorporated QCOM 4.73

Semiconductor HOLDRs (SMH) and the SPDR S&P Semiconductor (XSD)

Company Symbol % Assets

NVIDIA Corporation NVDA 5.11 Maxim Integrated Product. MXIM 4.66 Skyworks Solutions, Inc. SWKS 4.32 Atheros Communications. ATHR 4.31 Texas Instruments Inc TXN 4.3 Broadcom Corporation BRCM 4.3 Cree, Inc. CREE 4.29 Rambus, Inc. RMBS 4.25

PMC PMCS 4.21

Intel Corporation INTC 4.2

The semi’s have a Tendency to lead at important junctures – see chart left

Microsoft and Intel - two sleeping giants awaken and should benefit the QQQ

Canadian Dollar Accounts – enjoy via the BMO NASDAQ 100 Equity Hedged to CAD Index ETF (ZQQ) or the

iShares S&P/TSX Capped Information Technology Index Fund (XIT)