Tuesday, April 24, 2007

Is Intel a Bellwether for Computer Technology?

You know, asking the right questions is half the battle when it comes to trading. That's why it's so important to not be isolated as a trader. When traders act as sounding boards for each other, they start to ask new questions. And that can sometimes yield fresh answers.

Case in point: One hedge fund trader I work with, noting my earlier post on INTC and my recent post on money flows into the semiconductor stocks, pushed me to think through my findings. He even gave me permission to pass along our conversation.

"So what does it mean?" he prodded.

"Investors are going after growth; they're bullish on the economy," I offered.

"Yeah, yeah," he said, not quite uttering the words, "Tell me something I don't already know."

"I guess if the market for chips is hot, it might spell good things for all the electronics that use chips," I tried again.

"Bingo!"

That's all he said.

So, after we discussed our other business and finished our call, I decided to put electronic pencil to paper. Noting that Intel has been up over 14% in the past three weeks (15 trading sessions), I decided to examine what happens next in computer technology, using the Amex sector index $XCI as my measure.

Going back to 2004 (N = 817 trading days), we've had 142 occasions in which INTC has been up more than 5% over a 15-day period. Ten days later, the Computer Technology Index (XCI) averaged a gain of 1.07% (92 up, 50 down). By contrast, across all other occasions in the sample (N = 675), XCI has averaged a 10-day loss of -.09% (341 up, 334 down).

A strong Intel stock may say something about investors' attitudes toward technology in general. That strength appears to have persisted in the short run, making INTC a bellwether of sorts. I'll be watching this carefully over the next couple of weeks to see if, indeed, we can say, "Bingo!"

6 comments:

AnaTrader said...

Brett

Your say:
A strong Intel stock may say something about investors' attitudes toward technology in general.

My say:
Just as when Manufacturing orders are up, we should see an increase in Transportation figures.

An increased activity in one sector of the industry would impact on another, as in trickle down economy.

Brett Steenbarger, Ph.D. said...

Hi Anatrader,

Great hypothesis!! It would be interesting, for example, to test Fed Ex stock vs. retail sales figures and retail stock performance.

Brett

dk said...

Hey Brett...great post as always. INTC is indeed a critical bellwether and has gotten my attention lately as well (nice run!). However, it may be offering the sorts of signals that dogs can still hear best - lol.

With indexes at record highs, I asked the question today, Is It Time To Buy Tech?, using ratios to help with an answer. Intrigued by your use of $XCI, I then did a XCI vs. DJUSTC Comparison that's offers interesting insights as well.

Hope you enjoy.

best as always

David

Brett Steenbarger, Ph.D. said...

Thanks for the links and perspectives, David!

Brett

dk said...

Hi Brett...it's an interesting day to follow-up with you on this, but on Tuesday, the Tech Ratio we had discussed back in April finally broke above 3-year resistance. Here's a7-year chart which shows the secular nature of the signal.

About three weeks ago, I followed-up on my original April post, as things had developed to the point that yesterday's trigger seemed likely. I've kept an eye on your XCI as well, and a similar, XCI-based Tech Ratio is also nearing a secular signal.

Anyway, I enjoyed your original post about INTC as a bellwether, and thought an update with you would be worthwhile. That it's happening on a day that is so weak for INTC creates a fascinating set of testing dynamics as well.

Finally, I'm glad you recovered so swiftly from your bout with appendicitis. I thought your essay was perhaps some of your most inspired (and inspirational) writing you've done. The tie in to trading beliefs gave it unusual resonance, and the final Joycean epiphany as you walked down the street was remarkable....best as always....David

Brett Steenbarger, Ph.D. said...

Thanks so much for your note, links, and observations re: tech, David. I appreciate that greatly. When you post items to your blog that you think would be of special interest to TraderFeed readers, please email me the URLs and I will link!

Brett