After six months of a declining market, investors are shaking off any potential headwind and their fear of missing out has taken full control. Any positive news about earnings is enough to drive the markets higher these days, and there’s no shortage of companies beating earnings estimates. After yesterday, 70% of Q2 earnings have been reported and market sentiment has greatly improved. The earnings catastrophe that was supposed to happen failed to materialize.
Despite most technical indicators showing an overbought market, overbought clearly does not mean this market is ready to turn over. We are pinned up against the early June-highs and a close above these levels would certainly be a major feat.
The technology sector is leading the charge on the relative performance charts, despite it being a laggard over the last six months.
We could see another strong month ahead for tech and there’s one symbol that you may want to add to your trading list.
Keep reading to learn more about the one symbol that could have a strong August.
First, let’s take a look at the Dow Jones U.S. Software Index ($DJUSSW). The chart below shows the seasonality performance against the S&P 500 index from 2013 to 2022. As you can see, the software index has beaten the benchmark index 8 out of 10 years during both July and August, the strongest two months. The average outperformance has been 2.1% in August, which is also the highest in all 12 months.
One way to play this would be to trade the Technology Sector ETF, XLK. Another way is to use your favorite scanner and search specifically for software companies that fit your criteria.
Either way, it certainly seems like market conditions, market sentiment, and historical performance is showing a way for part of the tech sector to move higher in August.
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