Akamai breaks out. Tech leadership expands.

What began as market leadership in biotechnology stocks quickly spread to internet stocks and is now perpetuating in the NASDAQ 100 mega cap stocks.  We are entering a period of broad based tech market leadership which may continue for the duration of this bull market that began in 2009.  It is important to note that both the biotechnology and the internet index has doubled in a 2 year time frame.

Facebook Up 17% After Hours, LinkedIn Trend Is Up, FDN Is The Best Way To Play Them Both

Facebook finally posted earnings results that beat estimates and will be rewarded by the market tomorrow.  However, its social networking cousin, LinkedIn, seems to be the better play.

Despite the fact LinkedIn is a fraction of Facebook's size,  it has far more predictable earnings and revenue growth data and is likely to continue its smooth growth in the future as it continues to implement more revenue generating service offerings to its members.

It is extremely hard to determine the likelihood of success of a given social network or high P/E multiple internet company.  FDN is an ETF that tracks the Dow Jones Internet Composite Index. Although it has a more modest MER of 0.60%, it is worth every penny over the long term.

Canadian vs. US Financials

The distance between key technical support and resistance levels post financial crisis is and should be more notable in the financial sector than any other sector. In March 2009, it really looked like the Financial Select Sector SPDR (XLF), which more or less tracks the US financial services sector, was going to zero. It bottomed at $5.73 in March 2009 and currently stands at $13.44. It is currently trading in a downward fashion toward support at ~$12-12.50. If this support level breaks significantly, there really is no other significant technical support in between it and the bottom.

The iShares CSN S&P TSX Capped Financials Index (XFN.TO), which more or less tracks the Canadian financial services sector, appears to be in much better shape than its US counterpart but has the same support gap problem. Support exists around ~$19-20, but below that who knows? One would have to look back to 2004 to see a small trading range where some support may exist around $17.

I think both of these charts are going to be restricted to large trading ranges for months. The XLF faces tremendous resistance at $20 and will only break through it when a strong recovery is underway.

Value Line Arithmetic Index

According to Wikipedia, the Value Line Composite Index is composed of all of the companies that are included in the Value Line Investment Survey. There are currently 1,626 companies included in the index that are publicly listed on the following exchanges:
American Stock Exchange - 8 companies
NASDAQ - 511 companies
New York Stock Exchange - 1,087 companies
Toronto Stock Exchange - 20 companies

I can't find an ETF that tracks this index. Let me know if you can.

VIX

The volatility index (VIX) remained above 20 for most of the period between 1998 and 2003 during which time the technology boom completely unwound. The VIX spiked above 20 in late 2007 when the financial crisis began and has remained elevated since, dropping below 20 only briefly. It currently stands at 27. If history is to repeat itself, we may have a while to go before the VIX falls and remains below 20 for an extended period of time. This may be many months away but would indicate that confidence has returned to the equity markets for the long term and that a new bull market has truly begun. We are likely to experience sideways or range bound trading in the meantime.

Canadian Real Estate Prices

The above chart nicely illustrates the fact that Canadian real estate prices have appreciated significantly for 10 straight years, correcting briefly during the great recession. As this graph climbs higher, owning a new home becomes increasingly expensive relative to renting. Notice that in 1989, real estate prices peaked and entered a 10 year period of price consolidation during the tech boom of the 1990s. The smart money left the real estate market and went into the stock market -- technology stocks in particular. The smart money left the US real estate market in 2008. The price-to-rent index in Canada can't climb indefinitely. Last summer appears to be a potential top in Canadian real-estate as prices are down markedly this summer in metropolitan areas such as the GTA , Vancouver and Montreal. It is possible that history will simply repeat itself and we may experience a prolonged period of stagnation as the speculators become frustrated with the Canadian housing market.

The more important question is where will the smart money head next?