This 6.2% dividend fund is significantly overbought.

The first week of 2024 was a tough week for stocks. And, strangely enough, from now on, good The year of stocks is 2024.

However, as explained below, recent market movements suggest that parts of the technology sector are starting to change things. just a little In particular, tech-focused closed-end funds (CEFs), which yield 6.2%, are currently overbought.

I know there’s a lot to talk about first, so let me elaborate.

A week and a half before Christmas, and before last year’s Santa Claus rally, I wrote this: did not do it I want to hold a Santa Claus rally to end the 23rd year. This is because such year-end market rebounds have historically led to market stagnation the following year. Nevertheless, when the calendar flipped to his 2024, the stock price rose significantly.

Indeed, it was a great ride. Holiday cheer made me feel like the Grinch. Because I was sure this jump would lead to a January hangover. And it happened in the days immediately after the arrival of the New Year!

This drop alone severely hurt Santa Claus’s rally.And indeed, the year begins with such a slump did it Some worry that the irrational pessimism of 2022 will return. In fact, fear of market-wide pessimism likely exacerbated the market decline seen in early 2024.

But then the stock price skyrocketed. Also While the S&P 500 is effectively flat as of this writing, having erased its New Year’s decline earlier this week, it remains in a volatile situation.

So where does all this back and forth leave us?

I see this as a bit of a relief from the over-holiday excesses, as it suggests a more rational approach to the market this year.Also, it encourages us to take Just a bit As I said earlier, you have to be careful about the technical side of things. Let’s talk about that now.

All eyes on the Fed (again!)

Rewind to Monday, when tech stocks soared, pushing tech benchmarks higher. Technology Select Sector SPDR ETF (XLK XLK) It rose 2.5%, outperforming both NASDAQNDAQ and the S&P 500.

No, no other product was released as great as ChatGPT. This move was prompted by the Fed, which has clearly signaled that it will indeed cut rates this year.

The last time the Fed moved to cut rates was in 2019, after slowly and consistently raising rates since late 2015, when XLK (orange below) trailed the Nasdaq benchmark (blue) and the S&P 500 index (purple). The same pattern was observed. ).

Of course, the coronavirus lockdown contributed to the tech boost at the time, as this sector became critical to keeping us all connected and keeping the economy strong. However, there is no doubt that the Fed’s rate cuts have spurred strong outperformance in this rate-sensitive sector.

It was on the sidelines in the wake of the 2022 decline, as the Fed has suggested that 2024 could be more like 2019 than 2022 (and 53% of the Nasdaq in 2023). (lost returns) want to return to the market.

As mentioned earlier, this has led some tech stocks and funds into overbought territory, with CEFs Columbia Seligman Premium Technology Growth Fund (STK) It’s at the top of the list.

STK is a tech CEF that we always keep an eye on as it can earn a high dividend of 6.2% from a portfolio of blue-chip tech stocks that includes: Apple AAPL (AAPL), Microsoft MSFT (MSFT), Broadcom AVGO (AVGO) and Alphabet (GOOGL).

The fund also boasts an impressive history of 520% ​​total return since its inception 15 years ago. Because of its track record, portfolio of blue-chip technologies, and the big tech rally we’ll see in 2023, the fund has been trading at a premium to net asset value (NAV, or the value of its holdings) for more than a year and a half. .

Currently, that 6% premium (meaning investors are paying $1.06 for every dollar of STK’s assets) is far higher than the 3.9% premium the company has boasted over the past five years.

This premium makes STK the most expensive technology-centric CEF on the market, significantly outperforming other technology CEF underlying products. BlackRock Science and Technology Trust (BST)which is trading at near par as of this writing. BlackRock Science and Technology Term Trust (BSTZ)with a 19% discount. AllianzGI Artificial Intelligence and Technology Opportunity Fund (AIO)with a 12% discount.

Note also that all of these funds have higher yields than STK, with BST yielding 8.8%, BSTZ yielding 7.3%, and AIO yielding 10.1%.

Because of these discounts and dividends, I would not classify premium priced STK as a buy right now. everytime STK ended 2023 on a strong note, with its annualized yield rising slightly to 7.1% as it aimed for a CEF discount, despite ending the year paying a special dividend of 26.7 cents.

This investor-friendly approach is why we continue to monitor STK closely and see upside opportunities if it trades at a discount or at least below its five-year average premium. We believe that this is the case.

Michael Foster is the Principal Research Analyst for: contrarian outlook. For even bigger income ideas, click here to check out our latest report.Undying Income: 5 Great Value Funds with Stable 10.9% Dividends.”

Disclosure: None