BALTIMORE (Stockpickr) -- It's earnings season, and the tech sector is cleaning up. On average, tech stocks have beaten analysts' earnings estimates by 8.24% this quarter, the best earnings season performance for the tech sector in recent years.
More important, that earnings surprise is translating into price hikes this month. Despite a shaky start to 2015, the technology sector has reclaimed 3% returns since the start of February, beating the rest of the broad market along the way. But not all tech stocks are created equal here. The biggest gains are coming from a handful of breakout stocks.
To grab hold of the next round of moves, we're taking a closer look at five tech sector stocks to trade for gains in February.
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.
Up first is $2 billion software stock Blackbaud (BLKB - Get Report) . Blackbaud has been in rally-mode all year long, ratcheting 34.6% in the past year. Most of that upside action is from the beginning of 2014; shares have traded mostly sideways ever since November. But that sideways churn is exactly what makes BLKB look tradable now.
Blackbaud is currently forming a textbook ascending triangle pattern, a bullish price setup that's formed by horizontal resistance above shares and uptrending support to the downside. Basically, as BLKB bounces in between those two technically important price levels, it's been getting squeezed closer to a breakout above resistance at $45.50. When that happens, we've got our buy signal.
Relative strength is the side indicator to watch in shares of BLKB right now. That's because the relative strength line at the bottom of the chart has held an uptrend of its own, even during the ascending triangle pattern in price. That's an indication that Blackbaud is outperforming the S&P 500 in good times and bad ones.
As long as that uptrend in relative strength remains intact, this stock should continue stomping the S&P.
Things haven't looked quite so hot for shares of $86 billion enterprise application developer SAP (SAP - Get Report) . This huge software stock has shed more than 20% of its market value since last July's highs. For comparison, the S&P 500 is actually up over that same stretch of time.
The good news is that SAP is starting to look "bottomy" on a long-term basis. Here's how to trade it.
SAP is forming a long-term double bottom pattern. The double bottom is a bullish reversal pattern that looks just like it sounds: It's formed by a pair of swing lows that bottom out at approximately the same price level. The buy signal comes on a breakout through the peak that separates our two lows, or $72 in the case of SAP. A move through $72 means that buyers have finally retaken control of this stock.
SAP's momentum adds some confirmation to its price action here. That's because our momentum gauge, 14-day RSI, has been making higher lows at the same time that price dipped back down to re-test lower lows at $64. That's a bullish divergence that indicates buying pressure is building behind the scenes in SAP.
If you're looking for a chance to build a position in this stock, it's still critical to wait for resistance to get taken out at $72 first.
First Solar (FSLR - Get Report) is another tech sector stock that's showing signs of a reversal after trending lower for much of the last year. FSLR, like a lot of its solar industry peers, has been showing some glimmers of strong performance in 2015. In fact, FSLR posted a big breakout at the beginning of February -- and traders are getting a second chance at a low-risk entry in this stock today.
FSLR spent the last few months forming a rounding bottom pattern, another technical setup that looks just like it sounds. The rounding bottom indicates a gradual transition in control from sellers to buyers, and First Solar's setup triggered on a breakout above $45. Since the breakout, FSLR has been consolidating just above newfound support at that $45 level.
That re-touch of $45 is giving us a tradable "throwback" today. A throwback happens when a stock breaks out and then moves back down to test newfound support at that former price ceiling level -- in this case at $45. And while throwbacks look ominous, they're actually bullish for stock prices because they re-verify the stock's ability to catch a bid at support. For that reason, it's best to think of a throwback as a buying opportunity in FSLR.
Palo Alto Networks
90%. That's how much shares of Palo Alto Networks (PANW - Get Report) have returned in the last 12 months. That's a spectacular track record of performance, but don't worry if you've missed the move so far. There's still time to get in on the PANW trade, and it doesn't take an expert technical trader to figure out why.
PANW has been making its way higher in a textbook uptrend, bouncing on each successive test of trend line support. PANW's uptrending channel is formed by a pair of parallel trend lines that identify the high-probability range for shares to stay stuck within. As shares close in on that support line this week, it makes sense to buy the next bounce higher.
Waiting for a bounce is important for two key reasons: It's the spot where shares have the furthest to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring Palo Alto Networks can actually still catch a bid along that line before you put your money on shares.
The 50-day moving average has been a great proxy for support all year long, which makes it a logical place to park a protective stop. If the 50-day gets violated, you don't want to own PANW anymore.
Last up on our list of bullish tech stocks is $11 billion semiconductor firm Linear Technology (LLTC) . Linear has been forming a classic reversal setup in the long-term, and shares are finally within grabbing distance of triggering. The move comes on a shove above $47.
Why all of that significance at that $47 level? It all comes down to buyers and sellers. Price patterns, such as this inverse head and shoulders in LLTC, are a good quick way to identify what's going on in the price action, but they're not the actual reason a stock is tradable. Instead, the "why" comes down to basic supply and demand for Linear's stock.
The $47 resistance level is a price where there has been an excess of supply of shares; in other words, it's a spot 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 $47 so significant. The move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
Wait for shares to catch a bid above $47 before you buy LLTC.
-- Written by Jonas Elmerraji in Baltimore.