Market News

December 2, 2016  Fri 8:14 AM CT

Technology has lagged other sectors in the recent rally, and option activity underscores concerns about more downside potential.

In the initial weeks after the presidential election, the most notable underperformers were large, high-multiple e-commerce and social-networking names such as Amazon, Facebook, and Alphabet. But the bearish sentiment has spread to other tech areas this week, as noted yesterday with trades in the previously strong chip makers, specifically put buying in the Market Vectors Semiconductor Fund and Advanced Micro Devices.

Then yesterday the SPDR Technology Fund (XLK) saw the purchase of 6,500 January 47 puts in one print for $1.33, according to our tracking systems. Volume was nearly triple the open interest in the strike, showing that this is a new position.

Long puts lock in the price where a stock can be sold, so they make money if shares decline. Investors use them to hedge long positions or to speculate on a drop. (See our Education section)

The broadening weakness was reflected in the tech-heavy Nasdaq, which dropped 1.36 percent yesterday. By contrast, the S&P 500 was down just 0.35 percent while the Dow Jones Industrial Average gained 0.36 percent.

The XLK fell 2.06 percent to close at $46.52 yesterday. The fund's largest holdings are Apple, Alphabet, Microsoft, and Facebook.

The screen shot below from our proprietary ResearchLab market scanner shows how the fund has underperformed the S&P 500:

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