Can The Technology Sector Offer You Some Warming Profits This Winter?

Years ago, it was easy to point to the months between October and February as historically a period of out-performance for technology stocks. Now, this period has reduced by two months, making November through January the best period for technology sector stocks.

Over almost two decades, observing Fidelity’s Select Technology funds and the NYSE Arca Tech 100 Index, technology’s seasonal outperformance pattern is compelling. Currently, several factors are making tech’s prospects a promising investment opportunity. For one thing, technology names are much cheaper than they have been since the last bubble burst.

Usually, the fourth quarter is when corporate spending on new technology picks up. Corporate managers tend to hold some money in reserve. That unspent money has to be used in the fourth quarter or, when budget time comes around in the next fiscal year, there’s a high likelihood that efficiency experts may cut that budget.

This sales surge means during the fourth quarter tech company profits will likely be going up, and tech stocks in general should rise on the expectation of higher, accelerating earnings. Another factor that will be boosting the tech. sector is recovering emerging markets.

Lastly, as with many industries, hardware companies often end their production runs and begin recouping for new products during the beginning of the fourth quarter. This means that any inventory left on the shelf suddenly becomes much cheaper as companies drop prices to clear it out, and to make a last final attempt to increase their inventory turnover. Many company purchasers who don’t need to have the most recent tech. wait for the final months of the year to buy this late-model equipment at a steep discount.

The techno-surge finally ends as technology companies rebuild inventories and a new purchasing cycle begins. This is in the early spring, when technology stocks don’t fall into any particular profitable pattern that we can historically rely on.

Over the long run, several years plus, buying the technology sector in early November and selling at the end of January proves to be a beneficial, profitable strategy (losing in only 36% of the periods). Also, this simple strategy has offered average gains of 16-18%, pretty good for only a 4 month period. If you do decide to take a small tech stake, be sure to exit all of your tech. position come February 1st using this strategy.

Keep in mind that this is a short term strategy towards long-term investment gains. So do not be upset if you lose in the tech sector this next period for this strategy, because you should implement this strategy year-after-year to be consistently profitable in the long-term. It is much more likely that you will be profitable and see nice gains if you use this strategy for several years, rather than just one. If you would like more information on this I.M. me at sleyca (Yahoo messenger), email @ wlemerond@sleycapitallp.com, or call me at 262-939-8885