S&P/TSX Information Technologies Index is out of favor until the 13/34 weekly EMA re-establishes a green light.
The S&P/TSX Information Technologies Index continued to struggle to end the week. YTD, the group is down 17.17% and currently assumes the title of the worst performing sector in the S&P/TSX Composite Index.
The sector is down nearly 30% from September peaks in 2021, at $244.37. Deteriorating relative strength to the S&P/TSX Composite Index began in early November, 2021. The long-term trend filter 13/34 weekly EMA model turned negative mid-January 2022 preceded by a decline in momentum. The weekly 14 period RSI reached oversold levels at weeks end. Whether the sell-off develops into a bearish regime remains to be seen. Interestingly, during the market crash of 2020, the S&P/TSX Information Technologies Index fell sharply by 35% from 2020 highs, yet, RSI failed to reach a level below 30.
The selling pressure in the group approaches key support zones – retracements of 38%, 50%, and 62% from September peaks. Closing the week, the sector declined sharply by 7.71%, closing below the 38% zone. The zones mark previous periods of price consolidation in 2020 and 2021 where buying pressure rallied prices upwards. Failing to uphold support at current levels would signal further weakness towards 50% and 62% retracements, a range of $175 – $150. Unless the 13/34 model turns positive, the sector remains out favor for long positions.
Accounting for roughly 20% of the sector, much of the decline in the group is attributed to the sector’s former largest company by market capitalization. Shopify Inc. stock value shrunk by another 19.66% to end the week, and is -36.25%, YTD. All constituents of the S&P/TSX Information Technologies Index are in negative territory. However, investors interested in the sector would benefit from analyzing Shopify’s price structure.
And, whether triggered by potential rate hikes, prolonged inflationary pressures, revaluing of growth stocks, geopolitical tensions between Russia and Ukraine, etc., the sell-off was broadly felt across global markets, sectors, and asset classes – keeping risk at bay is paramount.