The technology sector has been a hot topic in the financial world, with many investors looking for ways to take advantage of the growth and momentum seen in this area of the market. The Sentiment King, a firm that helps investors gauge sentiment in the financial markets, recently published a follow-up article to their February 18th recommendation of technology stocks, recommending investors consider investing in the largest technology ETF, VGT.
According to the Sentiment King, technology stocks have risen over 20% since their original recommendation in February, and both sentiment and speculation indicators point to even higher prices in the future. While economic analysis can help investors determine what to buy, sentiment indicators like those used by the Sentiment King can help investors determine when to buy.
The Sentiment King measures investor activity and how bullish or bearish investors are. They note that measuring option buying against actual buying is a good indicator of investor sentiment in the technology sector. The chart below shows the speculation index for 661 technology stocks, which compares call volume to actual volume as a percent of all technology stocks.
History has shown that high levels of speculation occur at price tops and low levels occur at price lows. The current ratio of 35.3% is mid-range, indicating no price top in technology stocks.
Similarly, the &https://adarima.org/?aHR0cHM6Ly9tY3J5cHRvLmNsdWIvY2F0ZWdvcnJ5Lz93cHNhZmVsaW5rPW1Cd21ITWpXaFd3QXBic0NhZGZFZUZsZ2lIbmlrYmpkNGEwaENTMWswYTJJNWNFNWhUR0ZuU1V4VFp6MDk-8220;puts to calls&https://adarima.org/?aHR0cHM6Ly9tY3J5cHRvLmNsdWIvY2F0ZWdvcnJ5Lz93cHNhZmVsaW5rPW1Cd21ITWpXaFd3QXBic0NhZGZFZUZsZ2lIbmlrYmpkNGEwaENTMWswYTJJNWNFNWhUR0ZuU1V4VFp6MDk-8221; ratio of the number of traders buying &https://adarima.org/?aHR0cHM6Ly9tY3J5cHRvLmNsdWIvY2F0ZWdvcnJ5Lz93cHNhZmVsaW5rPW1Cd21ITWpXaFd3QXBic0NhZGZFZUZsZ2lIbmlrYmpkNGEwaENTMWswYTJJNWNFNWhUR0ZuU1V4VFp6MDk-8220;puts&https://adarima.org/?aHR0cHM6Ly9tY3J5cHRvLmNsdWIvY2F0ZWdvcnJ5Lz93cHNhZmVsaW5rPW1Cd21ITWpXaFd3QXBic0NhZGZFZUZsZ2lIbmlrYmpkNGEwaENTMWswYTJJNWNFNWhUR0ZuU1V4VFp6MDk-8221; options in technology divided by the number of traders buying &https://adarima.org/?aHR0cHM6Ly9tY3J5cHRvLmNsdWIvY2F0ZWdvcnJ5Lz93cHNhZmVsaW5rPW1Cd21ITWpXaFd3QXBic0NhZGZFZUZsZ2lIbmlrYmpkNGEwaENTMWswYTJJNWNFNWhUR0ZuU1V4VFp6MDk-8220;call&https://adarima.org/?aHR0cHM6Ly9tY3J5cHRvLmNsdWIvY2F0ZWdvcnJ5Lz93cHNhZmVsaW5rPW1Cd21ITWpXaFd3QXBic0NhZGZFZUZsZ2lIbmlrYmpkNGEwaENTMWswYTJJNWNFNWhUR0ZuU1V4VFp6MDk-8221; options is another way to measure investor expectations. A low ratio represents too many investors expecting prices to decline, and this normally occurs right before they rise. The current ratio of .62 or 62%, is mid-range, indicating that bullish sentiment in the technology sector is not excessive.
In February, the Sentiment King recommended the technology ETF XLK to participate in a technology sector rally. While XLK has performed well, the Sentiment King now recommends VGT as the largest, well-diversified technology ETF to invest in the sector.
The top holdings of VGT include Apple (AAPL), Microsoft (MSFT), and NVIDIA (NVDA) which all account for 49% of the portfolio. While both VGT and XLK are well diversified with over 300 issues and almost identical portfolios, VGT is slightly less focused with only 63% concentrated in the top ten investments compared to 71% in XLK.
Some investors may be tempted to seek larger gains using more focused technology ETFs with higher risk, but the Sentiment King recommends using VGT for its size and broad diversification. VGT is the largest technology fund with over $50 billion in assets and provides the features necessary for investors looking for a low-risk investment in the technology sector.
In conclusion, the Sentiment King&https://adarima.org/?aHR0cHM6Ly9tY3J5cHRvLmNsdWIvY2F0ZWdvcnJ5Lz93cHNhZmVsaW5rPW1Cd21ITWpXaFd3QXBic0NhZGZFZUZsZ2lIbmlrYmpkNGEwaENTMWswYTJJNWNFNWhUR0ZuU1V4VFp6MDk-8217;s sentiment metrics show that sentiment in the technology sector is positive, pointing to a continuation of the technology sector rally they forecasted in February. For investors looking to invest in this area of the market, the Sentiment King recommends using VGT as a well-diversified, low-risk option to participate in this rally.
