VGT: Tech Stocks Look Tired

seekingalpha11-23 21:10

Mega-cap tech stocks have led the market, but VGT's heavy concentration in Apple, Microsoft, and NVIDIA poses risks if their charts turn bearish.VGT is not a diversified fund; nearly 60% of its ...

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Let’s begin our journey with the daily chart of VGT itself to get a baseline in terms of what the fund has been doing to get some clues on future direction. StockCharts I’ve got a lot in this chart but first and foremost, the rising wedge formation on the price chart itself is of potential concern. Rising wedges are a bearish reversal pattern and I think the case for one being formed here is pretty clear. However, it’s only valid if it completes, and the way it would complete in this case is for price to fall out of the wedge on the downside. With the bottom of the wedge roughly corresponding to the rising 50-day SMA, that’s a general area to watch on any weakness. If it does complete, downside could be sharp and se","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"VGT":"信息技术ETF-Vanguard","BK4588":"碎股","BK4585":"ETF&股票定投概念"},"translate_title":"VGT：科技股看起来很累","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"VGT":0.9},"content_text":"Mega-cap tech stocks have led the market, but VGT's heavy concentration in Apple, Microsoft, and NVIDIA poses risks if their charts turn bearish.VGT is not a diversified fund; nearly 60% of its holdings are in the top 10 stocks, with 45% in Apple, NVIDIA, and Microsoft alone.The rising wedge pattern in VGT's chart suggests potential downside, but strong momentum indicators and seasonality trends offer mixed signals.Given the current chart patterns of the big three stocks, I am at a hold on VGT until clearer signals emerge.   DKosig  Mega-cap technology stocks have led this raging bull market for much of the past year or so. However, of late, the Nasdaq 100 has ceded ground on a relative basis to other asset classes, such as the S&P 500, but also small and mid-cap stocks. With the November/December period generally being quite bullish, it’s worth looking at whether the Vanguard Information Technology Index Fund ETF Shares (NYSEARCA:VGT) is a good place for your money. This fund is focused on the biggest of the big mega-cap tech companies the market has to offer, so it’s a great proxy. Let’s dig in. A refresher on VGT Let’s first level set on what VGT is, and what it isn’t. What it isn’t is a diversified fund. If you’re looking for a slow-and-steady index fund, this isn’t it. It’s diversified within technology, but it’s a concentrated bet on what amounts to a handful of stocks.   Seeking Alpha The fund has more than 300 holdings, but almost 60% is in the 10 biggest. Further, 45% of the fund is in the top three stocks, with those being Apple (AAPL), NVIDIA (NVDA), and  Microsoft (MSFT). These are of course no surprise as this is a market cap-weighted fund, but it is always a good idea to understand exactly what’s in a fund you’re looking at owning. Structurally, VGT is an excellent fund. You’d expect nothing less from the OG Vanguard, who has developed enormous expertise over the decades. Expenses are on the verge of nothing, coming in at just 10 basis points. Turnover is also quite low at just 13%. That’s great and VGT passes muster there, but let’s dig into what we think the fund’s outlook is as we move towards December. Caution ahead? That’s the big question here, and based upon what I’m seeing, I think caution is the word of the day. Let’s begin our journey with the daily chart of VGT itself to get a baseline in terms of what the fund has been doing to get some clues on future direction. StockCharts I’ve got a lot in this chart but first and foremost, the rising wedge formation on the price chart itself is of potential concern. Rising wedges are a bearish reversal pattern and I think the case for one being formed here is pretty clear. However, it’s only valid if it completes, and the way it would complete in this case is for price to fall out of the wedge on the downside. With the bottom of the wedge roughly corresponding to the rising 50-day SMA, that’s a general area to watch on any weakness. If it does complete, downside could be sharp and severe. On the other side of the ledger, the bulls have the PPO, the Chaikin Money Flow index, and the accumulation/distribution all support higher prices. In other words, momentum looks quite good at the moment, so it’s all about whether or not the wedge completes via lower prices. Seasonality is an interesting one for VGT, and below I’ve plotted seasonality relative to the S&P 500 for the past 12 years, which is when this current bull market started. StockCharts Over this period, December has actually been slightly negative on a relative basis, meaning you’re slightly better off just owning the S&P 500. However, that changes into January/February/March as outperformance takes off then. For the coming weeks, I’d say seasonality is slightly biased negative, but not a huge deal. How are the big three positioned? Now that we’ve got a baseline on VGT itself, let’s dig into the three largest components, because given that they comprise almost half the fund, as they go, VGT is likely to follow. We’ll start with Apple. StockCharts Of the three, I’d say this is actually the best looking chart. We’ve got a huge ascending triangle that’s been forming since the summer months, and if it completes, portends some pretty massive upside potential for Apple. So long as that lower trendline holds, I really like the look of Apple here. The PPO is moving higher ahead of the centerline, so this one looks good to me as a long, and that bodes well for VGT. Next up is Microsoft, which looks decidedly less bullish. StockCharts We’ve got a symmetrical triangle that has formed again since the summer months on this one, with essentially neutral momentum. This one is pretty simple, as the triangle will be broken at some point; the question is whether it’s up or down. Given the fundamentals and valuation of Microsoft, I believe it will break higher. But the fact is we have to respect the price action we have, not the price action we think should be happening. I’m neutral on this chart until the triangle breaks. Finally we have NVIDIA, which has been the poster child for the AI trade, and rightfully so. This is one of, or perhaps the best company in the world, so over time, I have no doubt it’s going higher. The question is whether its rally continues or has a breather first. StockCharts This chart has me slightly concerned to be honest, as this current rally looks quite tired. We’ve got a rising wedge here as well, very similar to VGT itself. The issue here is momentum is making new lows constantly since mid-October, indicating waning effort from the bulls. As with VGT, this chart is innocent until proven guilty, but I’m on the lookout here for a loss of that rising support to portend a more bearish phase for NVIDIA, which I think spells trouble for VGT, if only temporarily. What to do, then?  For me, VGT’s chart is also innocent until proven guilty. The rising wedge I’ve noted is a concern, but only if it completes. For now, it’s one possible path. I will say I’m neutral on the 45% of the fund that’s in the big three, which means the other 55% (or ~315 other companies) will need to carry the load. That’s totally possible, but until the charts of the big three start to look better, I think VGT is no better than a hold.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2485204982"}