Tech bullishness is back on the menu.
Or is it?
As I showed you yesterday, the tech sector absolutely crushed the broader market’s gains last week (a 2.4% gain compared to -0.2% for the S&P 500).
But as we know, after weeks of running this analysis in What My System Says Today, one week doesn’t make a trend. And something really stood out to me as I was looking over the numbers for today’s sector x-ray.
Let’s see how the tech sector looks now by using my Green Zone Power Rating system…
Tech Sector X-Ray: More of the Same?
One of my initial goals when designing this easy-to-use rating system was that I wanted a way to see quickly how investable a stock was for current market conditions.
It’s why I stuck to three general categories of “Bullish” stocks (green), “Neutral” stocks (yellow) and “Bearish” stocks (red):
- Bullish (rated 60 – 100).
- Neutral (rated 40 – 60).
- Bearish (rated 0 – 40).
We get a little more granular by implementing two more categories for the very best (“Strong Bullish”) and very worst (“High-Risk”), but this simple breakdown gives us a quick snapshot of a stock before we dig deeper.
Here’s how the tech sector looks currently, using my Green Zone Power Rating “x-ray”:
(Are you liking the new look? Send us any feedback you have to Feedback@MoneyandMarkets.com.)
Looking back at the last time we ran an “x-ray” on this sector on June 10, not much has changed about the relative mix of stocks. On that screen, we found the same number of “Bearish” stocks, 13 “Bullish stocks” and 23 “Neutral” stocks.
So once again, this bearish-to-neutral leaning in the Green Zone Power Rating x-ray above tells me that exercising some discretion and looking for individual tech stocks to buy (or potentially sell) is better-suited for the current market.
Let’s go a little deeper again by looking at how the sector stacks up on each of the system’s individual factors.
Strong Businesses With Expensive Stocks
Again, you’ll see that not much has changed across my individual factor ratings from when we ran this analysis a little over a month ago:
We have a few more stocks rating “Bullish” or better on the Momentum factor (30 versus 26 on June 10), which is indicative of much of the sector trading higher and even outpacing the S&P 500 by a good clip over the last month.
But otherwise, these stocks are still trading at incredibly high valuations (only three are “in the green” on Value), and their underlying businesses are still strong and growing (evidenced by the higher concentration of “bullish” stocks on Quality and Growth).
With only 40% of the sector rating “Bullish” on Momentum and 20% rating “Bullish” on Volatility, I want to focus on those factors because they are a telling trend in the sector as a whole.
Yesterday, I showed you how breadth within the tech sector was expanding outside of the Magnificent Seven, those seven massive tech companies that drove much of the bull market for almost two years.
But that lower concentration of “bullish” Momentum and Volatility stocks tells me that rolling our sleeves up should pay dividends. So let’s do just that!
Below, you’ll see the 15 stocks that rate bullish on both of these factors:
My paid-up Green Zone Fortunes subscribers can look up any of these ratings when they like (click here if you’d like to join up and do this yourself), but I didn’t mask the overall rating on two of the stocks above to provide a bit of a warning based on my Green Zone Power Rating system.
You can see that many of these stocks rate really well on both Momentum and Volatility, with the top four stocks in the table boasting 80+ ratings on both factors!
But that’s where the good times stop for International Business Machines (IBM) and Take-Two Interactive Software (TTWO)…
Both stocks rate “Bearish” overall! So while they may be enjoying short-term — and steady — stock-price momentum, with both tickers up more than 26% year-to-date … other individual factors are dragging their overall ratings lower. Both stocks are “in the red” on at least two of my fundamental factors (Value, Quality or Growth).
Without solid standing on those factors, any “moment of weakness,” be it an earnings miss or a bad headline such as announcing more layoffs, means investors won’t be shy about smashing the sell button.
Overall, it’s a great sign to see a greater number of stocks enjoying bull market gains because that points to a healthier stock market overall. However, using my six-factor (not two-factor) Green Zone Power Rating system will help you find those stocks that can not only enjoy the recent price momentum but also buy-and-hold stocks that are built to sustain their gains.
To good profits,
Editor, What My System Says Today
P.S. As you should already know, developing new investing systems is my #1 passion. And in the coming days, I’m going to be releasing something that might spark that same feeling for you. It’s an indicator that’s going to allow you to “take the wheel” and find your own way in today’s market. And the best part is I’ll show you exactly how to use it. Look out for more details later this week…