Software Stocks Are Still Softening Up

This column was originally published on RealMoney on Feb. 21 at 3:40 p.m. EST. It's being republished as a bonus for TheStreet.com readers.

Since my Jan. 12 warning to Protect Profits in Software, only two of the seven stocks I discussed have seen additional share price appreciation. More impressive -- or disappointing: Five have started share price corrections.

At the time, these companies were overvalued and overbought. They're the same names I suggested reducing holdings of back in December and January.

The two strong stocks of the bunch, Akamai Technologies(AKAM Quote) and TriZetto Group(TZIX Quote), both beat on recent quarterly earnings reports. But remember, both stocks still are overvalued and overbought, and shareholders should be prepared to act on risky levels accordingly. ValuEngine also upgraded Akamai from sell to hold.

The other five stocks now have negative weekly chart profiles, with Midway Games(MWY Quote) now oversold, to boot. Midway also saw a change in its ValuEngine rating: a downgrade from sell to strong sell. Take stock of Midway again when it reports quarterly results Feb. 23. Analysts expect a consensus loss of 24 cents per share.

Salesforce.com(CRM Quote) has been upgraded to hold from sell. (All other ValuEngine ratings are the same as on Jan. 11.) Salesforce.com also reports quarterly earnings on Feb. 22 with a consensus EPS of 5 cents -- a tricky time for any stock. With the upgrade to hold, I'd do just that, and then assess this position again after the earnings.

Considering the sector as a whole, the picture isn't much brighter: The Merrill Lynch Software HOLDRs(SWH Quote) ended last week at $36.94. Its weekly chart profile shows declining momentum, with last Friday's close below the five-week MMA at $37.57, a negative chart. The Software HOLDRs also is below monthly pivots at $37.81 and $39.39, which indicates risk to the 200-week SMA at $32.38. On the daily chart, Software HOLDRs is below its 50-day SMA at $37.62, which indicates risk to the 200-day SMA at $35.88.

Company Name/ Symbol	Jan. 11 Price	Feb. 17 Price	ValuEngine Rating	-UV/ OV %	Fair Value	Value Levels	Pivots	Risky Levels
Akamai (AKAM)	$22.92	$26.72	HOLD	87.9%	$14.22	16.85 S	20.31 Q/ 24.74 Q
Business Objects (BOBJ)	$42.36	$38.07	HOLD	2.0%	$37.31	33.44 Q/ 31.53 S		43.52 M
Midway Games (MWY)	$17.10	$10.63	SELL	14.0%	$9.33	7.04 A		18.93 Q
Red Hat (RHAT)	$30.82	$25.09	HOLD	35.0%	$18.59	19.30 Q	26.18 Q	29.09 M/ 30.81 M
RightNow (RNOW)	$19.95	$16.39	SELL	7.3%	$15.28			19.21 M/ 20.26 M
Salesforce.com (CRM)	$38.27	$34.34	HOLD	42.1%	$24.17		36.97 M	38.16 M
Trizetto Group (TZIX)	$17.27	$17.94	SELL	56.1%	$11.49	13.43 Q	16.03 Q/ 18.13 M	20.60 M
Source: Global Market Consultants