I sometimes suffer from smartphone envy.
, I can't justify buying these nifty devices, even though I've been a gadget guy for many decades. I just wish
Research In Motion
had been selling these units back in the 1980s and early '90s when I was traveling 30 weeks a year.
These three companies represent the best and brightest ideas in the tech arena, which explains why their stocks were scooped up enthusiastically after the March low. But recent headwinds in the broad market are having a negative effect on these market leaders, with many shareholders taking profits after their strong recovery runs.
Folks who missed their entry points into these high-tech issues are now wondering if a second-chance buying opportunity might be setting up this summer. To that end, let's take a look at the technical positioning of each issue and find the best time and price to toss a smartphone company or two into our longer-term portfolios.
I'll use weekly charts in this examination, in an effort to lower the emotional fires triggered by the selloff and get to the center of the underlying trends moving these issues. Just keep in mind that patience is a major requirement when trading long-term charts, because there are plenty of points between big support and resistance levels.
Apple topped out at $203 in late 2007 after a five-year rally. It sold off to $115 in the next two months and then started to recover. That bounce stalled well below the old high and gave way to a selloff that broke the first low in September. This bearish price action completed a broad double-top reversal, with resistance at the broken low near $120.
The stock moved higher with the broad market, starting in March, after grinding through a five-month basing pattern. It remounted the broken low in April and surged to $146 in early June, where the uptick ran out of steam. The weekly bars since that time shows a sideways consolidation that's posted a single lower high.
The rally stalled at the 62% retracement of the 2008 selloff, which is a common turning point. There's been plenty of selling pressure under the surface in the last month, but price is holding up relatively well. In sum, I'd call this an indecision pattern, in which gravity could take control if the stock can't find another batch of interested investors.
A downturn here shows initial support around $132 with a stronger floor between $115 and $120. If you're patient, that price level might offer a good entry later this summer or in the fourth quarter. Alternatively, I wouldn't chase the stock up here because it's showing no signs of wanting to break out and move higher.
Research in Motion ground out a yearlong double top between $80 and $140. It broke pattern support on heavy volume in September and plunged to a two-year low. Buyers returned in November and helped the stock carve out a bullish double bottom. Price lifted out of this pattern in April and rallied above the 200-day moving average.
That breakout attracted even more buying pressure, triggering an uptrend that lifted the stock into broken-top resistance in June. The rally stalled at that level and gave way to a pullback that accelerated to the downside after the company reported a cautious earnings outlook on June 18.The stock is now testing two-month lows.
The recent downswing has incurred technical damage, with the stock showing less buying interest now than at any time in the last few months. In addition, it's currently trading just under the 200-day moving average, which it broke in this week's selloff. This bearish price action suggests a continued decline in the weeks ahead.
A selloff into the upper $50s would trigger a reliable buy signal I call the water cup. In a nutshell, buyers usually step in when a correction drops into the "W" of a double bottom pattern after a strong rally. In a sense, the decline is pouring water into the cup, which then supports the stock ahead of a strong bounce.
Palm is the young upstart in this smartphone troika, even though the company pioneered the handheld device business with its revolutionary Pilot back in the 1990s. It was a serial underperformer for years until excitement about its long-awaited Pre product triggered a speculative uptrend earlier this year.
The recovery continued through the Pre release last month, with healthy sales figures supporting the stock. The rally has now lifted above seven-year resistance around $12.50 and pulled into the January 2002 swing high. Accumulation is outstanding, with multiple waves of buying interest showing up in the volume bars in the last three months.
The trend is your friend, but the stock is overbought because it hasn't corrected since March. The high-volume spike posted in late June might also be warning signal because the uptrend has made no progress since that date. The bottom line: This still is an issue to buy, but a few defensive measures are needed to avoid an unexpected downdraft.
First, the longer-term investor can take a partial position and then average down at a lower price if the stock starts an intermediate correction. Second, if you're holding period is shorter term -- say, three to six months -- place a stop loss under the red trend line because a violation of that level could signal the start of a major downturn.
Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.
At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.
Alan Farley is a private trader and publisher of
Hard Right Edge
, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of
, a premium product that outlines his charts and analysis. Farley has also been featured in
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
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