BALTIMORE (Stockpickr) -- If you're looking for action-packed trades, look no further than the tech sector. Technology stocks have been some of the most active names of the last year, and despite the recent weakness in tech this past week, some big names are starting to show signs of strength again.
Lots of technology sector stocks are looking oversold as we head into April. By and large, they led the broad market's sideways correction in March, so they're likely to lead it back into rally mode this month. But you shouldn't set on just the big momentum names of the last year; more than a few quieter issues are just starting to look ready for a break out in the short-term.
Today, we'll take a technical look at five of them.
For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Without further ado, let's take a look at five technical setups worth trading now.
First up is $2.4 billion technology consulting firm Sapient (SAPE). Sapient has been more or less flat on the year, but that's not a bad thing. All the while, it's been setting up a textbook bullish setup. That makes SAPE a big breakout candidate for April.
Sapient is currently forming an ascending triangle, a bullish setup that's formed by a horizontal resistance level above shares (in this case at $17.75) and uptrending support to the downside. Basically, as SAPE bounces in between those two technical price levels, it's getting squeezed closer and closer to a breakout above that resistance line. When that happens, it's time to be a buyer.
Relative strength has been in a solid uptrend for the last year, an indication that SAPE is continuing to outperform the broad market on both the up-side and the down-side. As the S&P 500 continues to show some corrective cracks, relative strength is the single most important technical indicator you can have in your toolbox.
We're seeing the exact same trading setup in shares of communications infrastructure firm Motorola Solutions (MSI). Like SAPE, Motorola is forming an ascending triangle trade, in this case with resistance at $67. A breakout above that $67 price ceiling is our buy signal in MSI.
Why all the significance at $67? It all comes down to buyers and sellers. Price patterns are a good quick way to identify what's going on in the price action, but they're not the reason a stock is tradable. Instead, the "why" comes down to basic supply and demand for MSI's stock.
The $67 resistance level, for instance, is a price where there has been an excess of supply of shares; in other words, it's a place where sellers have previously been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above $67 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
Graphics chip maker Nvidia (NVDA) has spent the last month or so consolidating sideways after a big pop higher at the start of February. But the sideways churn in NVDA isn't a reason to avoid shares in April. In fact, it's exactly what makes this tech name a high-probability trade right now. Here's how to trade it.
NVDA is forming a rectangle pattern, a price setup that's formed by a pair of horizontal resistance and support levels that basically "box in" shares between $19 and $17.50. Rectangles are "if/then patterns" put a different way, if NVIDIA breaks out through resistance at $19, then traders have a buy signal. Otherwise, if the stock violates support at $17.50, then the high-probability trade is a sell.
Because NVDA's price action leading up to the rectangle was bullish, there's a higher likelihood for an upside breakout through $19. When that happens, this stock's minimum upside target ratchets up to $20. As always, keep a tight stop in place if you decide to buy the breakout in NVDA.
International Business Machines
There really hasn't been a good time to buy shares of IT giant International Business Machines (IBM) in the last 12 months. While the broad market was rallying hard since early 2013, IBM was busy selling off 9%. That's some major underperformance during a time when most tech names were working pretty well for your portfolio. But dust off your "buy" button -- it looks like IBM's share price atrophy is coming to an end.
It's not just the fact that IBM sold off all last year that's significant this $200 billion tech name sold off in a well-defined downtrend. Every time shares pressed up against trendline resistance in 2013, it was a great time to be a seller. Now, though, 2014's breakout above trendline resistance is a solid buy signal.
IBM currently has a meaningful support level at $190. If you decide to start building a position in IBM here, that $190 level is a smart place to stick a protective stop below. The price action in IBM hasn't been the most orderly, but it's orderly enough to make it tradable in April.
Palo Alto Networks
Not all of the names we're looking at today are bullish; the sole downside trade is $5 billion network security firm Palo Alto Networks (PANW). Make no mistake, PANW has seen a stellar run over the last six months, rallying more than 50% while the broad market was barely breaking double-digits. But that buying frenzy is exactly what's making PANW look "toppy" this week.
Palo Alto Networks is currently forming a double top, a bearish reversal pattern that sounds just like it looks. The double top is formed by a pair of swing highs that max out at approximately the same price level. The sell signal comes when the trough that separates the two highs gets violated. For PANW, that trough is right at $68.50, a price that's getting tested this morning.
Momentum, measured by 14-day RSI, adds some extra confidence to downside in PANW. Despite both price tops coming in at the same level, our momentum gauge has been bleeding off over the course of the setup. That signals the fact that down days are outpacing up days in this stock.
Keep an eye on that $68.50 level in today's session. If it gets violated, PANW is a sell.
To see this week's trades in action, check out the Technical Setups for the Week portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.