This column was originally published on RealMoney on April 24 at 12:03 p.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.
Nasdaq 100 Trust
( QQQQ) completed a round trip back to its 2007 high last week. It's a relief the instrument finally overcame multiple layers of resistance generated by the Feb. 27 selloff.
But its primary components -- big tech stocks -- still have a lot of work to do in order to catch up with the mid-cap and small-cap segments of the broad sector.
Perhaps this will change as the first-quarter earnings season unfolds. After all, big-caps in other market groups have been firing on all cylinders this April, leading the
to new yearly highs.
But it's still a wait-and-see game for big tech, which has disappointed patient investors for several quarters now.
In the meantime, let's look at five of the most promising plays in the big tech arena:
- Apple (AAPL) - Get Apple Inc. Report
- Adobe (ADBE) - Get Adobe Inc. Report
- EMC (EMC)
- Linear Tech (LLTC)
- Convergys (CVG)
Curiously, several of these top-performing issues don't get the same love as big guns
. But the charts of the five winners (below) speak for themselves, while these four horsemen of the 1990s still struggle to return to their glory days.
Apple is the obvious place to start because its leadership role in big tech has been unrivaled in recent years. I've seen a fair share of hand-wringing lately as the stock's latest upsurge fizzled out. But all systems are still go for the issue to break out to a new multiyear high in the next one to two months.
The stock sold off in early April after it filled the sharp January down gap between $92 and $95. This is common behavior the first time that a recovering issue rises into this type of overhead supply. The pullback and bounce at the 50-day moving average suggest that price is working through a triangle pattern that should hold support just under $90.
Adobe gapped higher after its March earnings release and tagged a multiyear high. Unfortunately, it then ran into longer-term resistance at $43.65.
The rally stalled out immediately after hitting this key level, with the stock meandering sideways to lower for the last three weeks. Price action looks relatively weak in the short term, but I suspect this is misleading.
More likely the stock is building a basing pattern to absorb volatility from the big gap day and is setting up a multiyear breakout run. Specifically, note how the dips are getting bought aggressively, with price holding well above support at $41.
EMC rallied to a recovery high at $15.80 in 2004 and sold off. It spent the next three years building a downsloping base, with support at $9.51. The stock is now rallying into that resistance level after a strong April rally. The uptrend could stall out for a few weeks while it tests this barrier, but the stage is now set for a strong breakout.
At a minimum, look for an orderly pullback to new support at $14.75 before the stock breaks out and moves considerably higher. That correction could start right after price tags the old resistance. I'd be patient here and wait a few more weeks for this bullish pattern to set up properly.
I examined the surprising chip rally in
Monday's column. Linear Tech has emerged as a leader in the group, following a vertical rally last week. While the chart shows many layers of resistance that still need to be overcome, heavy volume on the breakout is triggering all kinds of bullish signals.
It looks like the initial rally burst is almost over and the stock will consolidate its gains for a few weeks. Look for price to hold current levels relatively well during this period. In fact, I doubt the gap between $32 and $35 will get filled anytime soon. Instead, look for the pullback to stabilize above $35 and set up an entry for a run above last week's high.
Convergys has been on a roll since breaking through four-year resistance last November. It's risen almost 35% since that time, while better-known software stocks have run in place. It's having a tough time pressing above the February high, but buying interest has remained strong, indicating that shareholders are hanging tough.
A rally through the 2007 high will also trigger a major breakout above resistance created by a broken 2001 top. Bullish synergy could surge price quickly into the upper $30s if and when that happens. There could be one more pullback before that event unfolds, but now is the perfect time to get this one onto your trading screens.
At the time of publication, Farley was long Cisco, although holdings can change at any time.
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;
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