Now is a rough time for stock market bulls ... and being a bear isn't much easier. Record daily volatility makes it tough to go either way.

I've found that sector rotation offers much more opportunity than market timing. Why? Think for a minute: Broad indexes like the S&P 500 and the Dow Jones Industrials are averages. That means they include the bad as well as the good.

Sector-specific indexes can go both ways as well, but most of the time at least one sector shows upside potential. The challenge is identifying these trends.

Recently I've noticed some signs of life in technology. It's still early, and I'm not yet ready to buy in. Yet I think we should keep our eyes on the tech ETFs.

Technology Breakout?

Take a look at this chart of SPDR Technology (XLK). This ETF is based on a capitalization-weighted index including all the technology components of the S&P 500.

In the last week XLK broke above its 200-day moving average (the dotted line). Chart-watchers regard this as one of the classic, long-term uptrend signals.

Also note the horizontal resistance line right around the $27 level. XLK couldn't break above that point despite three valiant attempts this year. Now it's trying again.

No journey is without its sidetrips, and Tech's recent upward path took a detour this week. Meanwhile, you have time to start preparing your watch list of high potential Tech ETFs.

New Ways to Trade
Tech with ETFs

We've had a bumper crop of new ETFs in 2011. Some let you in on specific technology niches that were once difficult to trade. Here's a quick rundown ...

First Trust Nasdaq CEA Smartphone Index Fund (FONE) holds a portfolio of stocks from the fast-growing mobile computing business. If you have an iPhone or Android device, you know they're now far more than just "phones."

ETF FONE home!

FONE sounds like a good concept but still isn't getting much love from investors. In fact, it just went on my ETF Deathwatch list because the shares trade so rarely. Which brings up a good point: A new tech gadget can be a hit with consumers, but an ETF focusing on it won't necessarily succeed. Be sure to use a limit order if you buy or sell FONE.

First Trust ISE Cloud Computing Index Fund (SKYY) offers entry into another much-discussed technology subsector. "Cloud computing" involves the movement of application software from desktop computers to centralized servers.

SKYY includes pure plays in this group, broader technology stocks that are involved to some degree, and companies offering related goods and services.

Incidentally, ETRACS 2x Long Cloud Computing ETN (LSKY)offers 2x leveraged exposure to the same index as SKYY. And that word "Long" in the name makes me think an inverse version might be coming.

ETRACS Internet IPO ETN (EIPO) is, despite the name, not dedicated to initial public offerings. You will never experience the first day "pop" of an IPO by owing this ETN. The portfolio of U.S.-listed internet stocks cannot own them prior to their listings. The underlying index does, however, allow for adding new stocks within a few weeks of the initial offerings.

These chips are changing the world.

The same sponsor also offers souped-up exposure to this group with ETRACS Monthly 2x Leveraged Internet IPO ETN (EIPL). ETRACS is a unit of UBS, by the way. They also just launched two ETNs based on the ISE Solid State Drive Index.

ETRACS ISE Solid State Drive Index ETN (SSDD)and ETRACS Monthly 2x Leveraged ISE Solid State Drive Index ETN (SSDL) are not pure plays on this industry. All are involved in the "flash memory" chips used in many smartphone and tablet devices but do other things as well. The underlying index consists of only eleven stocks.

Finally, I'm glad to see some new alternatives combining emerging markets and technology. Two are dedicated specifically to tech stocks from China, while the other includes China as well as other emerging markets. These are worth a look ...

• Global X China Technology ETF (CHIB)
  
  
• Guggenheim China Technology (CQQQ)
  
  
• Technology GEMS (QGEM)

As I said, we don't yet know if technology will be able to keep up its recent leadership. The prospects do look encouraging, though, and these new ETFs give you several new ways to get involved.

Source: Moneyandmarkets.com

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