Look for These Four Tech Stocks to Outperform

The major indices posted high-volume reversals near first-quarter support levels in Tuesday's strong session. This turnaround should prop up equities through second-quarter earnings season but isn't likely to mark the final lows of this bear market. In fact, we could easily see a repeat performance of last year's August plunge.

So, as the expression goes, let's make hay while the sun shines. The oversold technicals and deep pullbacks should draw in enough buying interest to set up a few weeks of rewarding long-side trades. However, careful selection will be required to profit from this bounce, because overhead supply will limit the upside of many stocks and sectors.

What's the best place to find opportunity after a deep selloff? I usually avoid beaten-down stocks and focus solely on issues that held up well through the maelstrom. I plan to limit my candidates even further in the current scenario by staying away from sectors that move counter to the major indices, like the commodities.

In fact, let's take one final step on this go-around and just look for tech stocks that performed well through the selloff and now show patterns that favor strong upside. This elite grouping should perform very well as the major indices lick their wounds and try to jump-start a recovery attempt.

NetLogic Microsystems (NETL)

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Source: eSignal

I highlighted NetLogic Microsystems (NETL - commentary - Cramer's Take) on June 12, noting it was the strongest semiconductor issue in my database. The stock held up well through the broad downturn, lifting above the 50-day moving average in Tuesday's broad rally. It's now trading just 5 points below the two-year high printed about three weeks ago.

Look for a period of basing action between $32 and $35, followed by a recovery attempt that tests the high. The company doesn't report earnings until July 29, so it has plenty of time until news shocks might override the positive technicals. This market leader might even trade into the mid-$40s if the major indices can stabilize.

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C&D Technologies (CHP)

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Source: eSignal

C&D Technologies (CHP - commentary - Cramer's Take) is another small tech stock showing a bullish pattern after the broad selloff. It fell from $29 to $3.70 in a long downtrend that ended in August 2007. It moved higher into year-end and stalled near $7 for almost six months before gapping up on heavy volume.

That surge reached $9.52 in mid-June, with the stock rolling over and pulling back to 20-day moving average support near 8 a few days ago. Price could bounce strongly here or drop down to test longer-term support near $7.30. In either case, all systems are "go" for this small winner to test the 2008 high and resume its healthy uptrend.

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Ariba (ARBA)

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Source: eSignal

Ariba (ARBA - commentary - Cramer's Take) was a household name when the bubble burst in 2000 and dropped the stock more than 1,000 points (before the reverse split) in less than a year. Its historic fall from grace triggered a long period of underperformance that ended suddenly in April, when price rallied out of a three-month basing pattern and posted a three-year high.

The upside ran out of steam in mid-June, with the stock pulling back to consolidate its healthy gains. It gapped down with the broad market on Tuesday and then shot higher on solid volume, posting a bullish outside day that should mark the low of this correction. Look for price to rally up to round number $20 after this upturn builds momentum.

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Solera Holdings (SLH)

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Source: eSignal

Solera Holdings (SLH - commentary - Cramer's Take) has been moving higher in a steady uptrend since it came public in May 2007. It surged to a high at $25.48 in November and entered a broad rising-wedge pattern that's still in place eight months later. Notably, the stock has traded up to an all-time high this week after nosing above resistance at $28.50.

Normally I don't post rising wedges, because the series of nominal highs can be quite frustrating when you're looking for fast-paced profit opportunities. But there's a good chance this stock is setting up for a a strong breakout over the rising-highs trend line. That event would trigger a strong momentum surge and very favorable reward-to-risk scenario.

Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider C&D Technologies to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.

Farley is also the author of The Daily Swing Trade, a premium product that outlines his charts and analysis. Farley has also been featured in Barron's, SmartMoney, Tech Week, Active Trader, MoneyCentral, Technical Investor, Bridge Trader and Online Investor. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

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