Ari Wald, Technical Analyst at Oppenheimer, recommends overweighting high-quality Technology stocks after a near-term breakout for the sector versus the S&P 500.
Wald has moved Information Technology back to an Overweight ranking based on his view that the sector’s secular trend has reversed higher and is in a position to retrace the losses of 2000 to 2002, and because in the near-term the sector is breaking higher versus the S&P 500 (see Chart 1).
In terms of individual shares, Wald thinks Software & Services stocks like Facebook, Fiserv, Google, and Salesforce.com are attractive, given these are fundamentally rated “Outperform” at Oppenheimer and screen positively based on trends in earnings revisions, but says to avoid the Communication Equipment industry (see Chart 2).
Following the breakout, the Technology sector has joined two other sectors that Wald recommends overweighting: Discretionary and Consumer Staples (see Table below). Overall for the S&P 500, Wald expects “the current mean-reverting rally to continue as the sentiment pendulum swings toward optimism in the coming weeks while seasonal trends strengthen.” His target is the 200 day moving average, currently near 2060.