Five Strong Tech Stocks

I looked at my active positions over the weekend and realized there wasn't a tech stock among them. Then I checked out all my trades for the last month and discovered only a handful came from that broad sector.

Seriously, I haven't been avoiding tech stocks. It's just that the market hasn't offered a lot of sector opportunities in this late-summer environment. Of course, that's strange, given tech is the most widely played and overloved of all market groupings.

Consider the hype ahead of Cisco (CSCO - commentary - Cramer's Take) and Dell (DELL - commentary - Cramer's Take) earnings a few weeks ago. It felt like the calendar had been turned back to 1999, given all the attention devoted to these two companies. Admittedly, these are good operations that sell fine products. But why should we care anymore whether their profits are growing or shrinking?

That said, my complete lack of interest in tech stocks got me thinking. I'm a contrarian who understands that sectors cycle in and out of good trades all the time. So this unconscious avoidance might actually signal that these issues will come to life and yield an abundance of good positions in the weeks ahead.

With this in mind, I flipped through dozens of tech stocks and culled a list of five issues with bullish price patterns.

Autodesk (ADSK - commentary - Cramer's Take) did something last week that few tech stocks have been able to accomplish during these dog days of August. It broke out to new highs on heavy volume. Take note because stocks that outperform during weak periods become even stronger when the broad market stabilizes.

Those looking to buy this stock should wait because it isn't a good time to chase any breakouts. Instead, wait until the rally runs out of stream and price moves back toward the breakout gap between $38.50 and $40. That level should mark the best place to enter new positions.

Apple Computer (AAPL - commentary - Cramer's Take) hit an all-time high at $45 in February and pulled back in a deep correction. It found support in the low $30s and charged back to the high in July. The stock consolidated below that level for a month and then broke out seven bars ago. This is a legitimate rally that should yield an uptrend lasting weeks or months in duration.

The stock is now pulling back in a bull flag pattern. Things could get a little choppy ahead of the Labor Day holiday, but it looks like a decline below $45 would mark a good entry price.

I highlighted Amazon (AMZN - commentary - Cramer's Take) just before its solid earnings report last month. The news gapped the stock out of a 21-month bull flag pattern and into a 52-week high. Price hit $47 after the breakout and is now pulling back to consolidate its recent gains.

Relative strength indicators suggest this decline has further to go before the stock stabilizes and resumes its uptrend. So look for a test at the 50-day moving average near $40.50. This should offer a low-risk entry for a rally that could last into this year's holiday season.

Hewlett-Packard (HPQ - commentary - Cramer's Take) has been moving higher since Carly Fiorina, its unpopular former CEO, got the boot last February. It's been a solid performer in both the tech sector and Dow Industrials. Notably, the rally just lifted price through the top of a four-year trading range. This is a strong buying signal.

The stock is sitting just above resistance, so it could drop back to test the breakout level before moving higher. But if momentum is strong enough, it might continue to press higher, eventually reaching the all-time high in the $60s. The best plan is to keep this one on your trading screen, and wait for a push up to $28 or a pullback to $25.

Most chip stocks don't have a bullish look right now. So I had to work hard to find a sector stock that shows considerable upside. Nvidia (NVDA - commentary - Cramer's Take) seems to fit the bill nicely. It just broke out of a four-month base and hit a three-year high. But it's a mixed picture because accumulation failed to get above February levels on the breakout.

This suggests it will take time for the stock to gather enough interest for a solid rally above the recent high. So the best plan is to stay defensive and buy it in pieces as price moves lower to test the breakout level. Consider your first entry as the stock fills the gap near $28.

Could these be the leaders that bring the sector back to life as we move toward the fourth quarter?

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Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback; click here to send him an email. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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