You may not realize it, but the tech sector is posting double-digit returns in 2016. Year-to-date, the Technology Select Sector SPDR ETF (XLK) is up 11.7% on a total returns basis, a run that leaves the rest of the S&P 500 distinctively in its dust.
For a year when outperformance has been hard to come by, tech stocks are offering up an awful lot of it. And there's reason to expect that momentum to hold up in the months ahead.
That's because, even after the double-digit rally we've already experienced this year in tech, a big chunk of the individual stocks in the sector are hanging near the verge of breakout territory. To take advantage of the positive sector trend for technology stocks, we're turning to the charts for a technical look at five tech trades that are breaking out this week.
In case you're unfamiliar with technical analysis, here's the executive summary: 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, here's a rundown of five technical setups that are showing solid upside potential right now...
Up first on our list of tradable tech stocks is $70 billion chip stock Broadcom Ltd. (AVGO) . Broadcom has been a performance leader in 2016, rallying more than 28% since the calendar flipped to January. But don't worry if you've missed that upside move so far - this stock is signaling the potential for a second leg higher thanks to a textbook bullish breakout signal that's been shaping up in shares since September.
Broadcom is currently forming an ascending triangle setup, a bullish continuation pattern that signals that possibility for more upside ahead. The pattern is formed by a horizontal resistance line up above shares at $177.50, with uptrending support to the downside. Basically, as shares of Broadcom bounce in between those two technically significant price levels, shares have been getting squeezed closer and closer to a breakout through their $177.50 price ceiling. When that breakout happens, it's time to buy this tech stock - and shares are flirting with that breakout level as of this writing.
Relative strength, the indicator down at the bottom of Broadcom's price chart, is the additional piece of evidence for the breakout that investors should be paying attention to here. Our relative strength line, with measures this stock's outperformance versus the rest of the broad market, has been in a well-defined uptrend since February - as long as that uptrend in relative strength remains intact, Broadcom is statistically more likely than not to keep on outperforming. Wait for $177.50 to get materially taken out before you click buy.