Contributor Since 2010
Investors looking for exposure to the now-strengthening tech sector should focus on these two stocks, which are likely to outperform even the tech sector’s finest in the near term.
Since the mid-June lows, the technology sector has been stronger than the S&P 500 and the Dow Industrials. As these two major averages were testing their prior lows and key support last Thursday, the PowerShares QQQ Trust, Series 1 (QQQ) was holding well above its prior lows. This was a positive sign, as was the better relative performance, or RS analysis, for both the Dow Transportations and the Russell 2000.
As I noted last Friday, the Advance/Decline (A/D) indicators needed a strong rally early in the week to complete their bottom formations. The strong action over the past two days has provided further evidence that the stock market’s correction is now over. A pullback is likely in the next week once stronger resistance is reached.
Many market participants were surprised by the sharp 6% gain in Microsoft (MSFT) over the past two days. MSFT and many of the other big technology stocks are now considered by investors to be “value traps.” While the technical outlook for MSFT has improved, it still shows weaker relative performance than two other big tech stocks, which now look attractive from a risk/reward perspective.
Chart Analysis: NetApp, Inc. (NTAP) is a $17 billion company that provides a wide range of data storage, management software, and hardware products to a global customer base. NTAP peaked at $58.25 in early February and is currently trading 12.9% below these highs.
Oracle Corp (ORCL) came very close to its weekly Starc- band two weeks ago with its low at $30.65. It made a high of $36.50 in early May and is currently 11.4% below this high.
What It Means: Many investors and traders have become very frustrated by the poor action in some of the largest tech stocks. Now that they are out of favor, it could mean that they will start to perform better. Both NTAP and ORCL look attractive for new purchases by those who have a low exposure to the equity market, or to the technology sector in particular.
How to Profit: Oracle Corp (ORCL) looks to be the better buy among the two, and buyers can enter at $32.04 with a stop at $30.41 (risk of approx. 5%). On a move above $34.15, raise the stop to $31.44 and sell half the position at $35.66.
For NetApp Inc. (NTAP), buy at $50.22 with a stop at $47.76 (risk of approx. 4.9%). On a move above $55.76, raise the stop to $49.74 and sell half the position at $58.84.