This could be tech's year.
That's what charts of the Technology Select Sector SPDR Fund (XLK), which tracks 68 of the market's largest tech stocks by market cap, are telling longtime technical analyst Todd Gordon, founder of TradingAnalysis.com.
Tech has already been having a banner year, with the XLK up by about 32% for 2019 versus the S&P 500's more than 19% gain. But with the memories of last year's fourth-quarter collapse — which was led by Apple, the XLK's second-biggest holding — still fresh, investors could soon start to feel the heat.
But that's not how Gordon sees things playing out.
"All we've seen is a market that's gone sideways and weather a lot of bad news" on the fundamental and political fronts, Gordon said Tuesday on CNBC's "Trading Nation." "I think the market's held in extremely well and I think it's time to finally push higher."
And, this time, tech could lead the charge higher, not lower, the technical analyst said.
"You're seeing the semis, measured by the [VanEck Vectors Semiconductor ETF, or] SMH, make new highs. You're seeing large-cap tech like Microsoft just below highs. You're seeing Facebook act better. You're seeing Apple at new highs. So, I'm seeing a lot of good things in technology," Gordon said.
Square that with the charts, which show the XLK making a series of higher lows and lower highs — which Gordon sees as signs of "indecision" — and the group appears poised for a meaningful breakout, he said.
"It seems to be that if earnings are strong, we should be able to continue higher," he said, noting that the XLK's floor of support comes in around the $77 to $78 level, just above its 200-day moving average, the white line on the chart below.
"If the momentum is going to carry us higher, then we should have no problem reaching the higher 80s," Gordon said. "There's a reasonable shot we should be able to get up to the $88 mark, and if we break down, if earnings season does not go well and we get some bad news on the political front, we might even see as low as [$]76. So, I think we're going to push higher, up towards that 88 mark."
Climbing to $88 would mean new all-time highs for the XLK, and a nearly 8% rise from its Wednesday morning levels. The fund's current record high is $82.78, reached on July 24, 2019.
To capitalize on the potential move, Gordon set up a call spread by buying the $83 monthly call options expiring in December and selling the $88 December monthly call options, a $5 spread that cost him $2.
"That means we're risking $2 to make $3," he said. "We shouldn't have to risk the entire 2; if the trade is not working and we're starting to see the market roll over, we should be able to recover this call spread at about a dollar. So, I'm risking about a dollar, or $100 per call spread you're trading."
As always, Gordon recommended that investors "position-size according to your particular risk profile in the trading or investing account that you use."
The XLK fell by nearly 1% Wednesday.