The Technology sector has been a top performer and the only one holding out for a gain over the last week. The outlook for the Technology Select Sector SPDR (ARCA:XLK) was provided on December 2; here is the outlook for four of the ETF's biggest holdings, which are also some of the world's largest technology companies.
Apple (Nasdaq:AAPL) has just made it into positive territory for the year, moving within a strong uptrend. The current swing higher which began in late November is likely to pause or pullback in the $570 region. This is Fibonacci extension level as well minor resistance resulting from the downtrend in late 2012. Following the pullback, or if the price continues to rally through the potential resistance area, the next target is the $600 region. In order for the trend to remain strong pullbacks should hold above $520. A break below , and ultimately a move below $512, indicates the uptrend is in jeopardy. Currently the trend is up until proven otherwise, therefore buying pullbacks which pause above (or bounce off of) the trendline is one strategy to use. Stops can be placed below $520 or $512.
Google (Nasdaq:GOOG) continues to hold solidly above the psychologically important $1000 mark, recently putting in a new high at $1068. That could be the short-term top as the price pulls back and consolidates. The stock is still strong so buying a pullback between $1045 and $1030 is one potential play. The upside target, assuming support holds is just below $1100. Support should come in by $1030. However, if it doesn't it signals the stock is entering a larger consolidation, or that the short-term uptrend is questionable. A drop below $1020 indicates the end of the short-term uptrend. The large gap higher in October is significant. As long as the price stays above that gap, $975, over the next several months the stock looks good technically.
Microsoft (Nasdaq:MSFT) has had two significant upside thrusts this year, the first starting in the spring, and the second in September after forming a basing pattern. The stock just put in a 52-week high at $38.78, a level not seen since 2000, so if the upward pressure continues the next target is $39.40 to $40. In the short-term, support has developed along a small trendline which began in November. Additional support is along the larger trendline which began in September. A drop below the recent swing low at $36.67 indicates the uptrend has weakened, or that it is entering another large consolidation which can last for months in this stock. In either case, a drop below $36.67 nullifies a strong bullish bias at least for the next several months.
IBM (NYSE:IBM) has not faired as well recently, moving within a strong downward trend channel after peaking in March. A break below support at $177 indicates selling is likely to continue in the short-term, testing the bottom of the channel between $167 and $165. If trading this stock, being short is where the money is currently. In order for there to be a bullish prospect the price will need to create a higher low in conjunction with creating a higher high. While that is unlikely in the short-term, based on current levels that means the price needs to create a higher low than $172.57 and then move above the recent high at $186.24. Bulls should be wary; there are better opportunities for long positions in this sector.
The Bottom Line
Technology has been strong recently, but not everything in the sector is a buy. Picking your spots to enter and exit is crucial, especially when a stock has had aggressive movement which may spark equally sharp reversals. It's recommended stops are used to control risk. The overall trend for the S&P 500 remains up, so buying strong stocks during pullbacks that remain above support remains the ideal play.
Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.