What The Charts Say About Big Tech Stocks

By Cory Mitchell | August 06, 2014 AAA

As of the Aug. 5 close, the Powershares QQQ Trust Series (QQQ), representing the Nasdaq 100, is 3% off its July high. Apple Inc., Google Inc., Facebook Inc. and Microsoft Corp. provide insight into the overall strength of the sector, as these are the titans of technology and represent several of the largest market caps on the U.S. exchanges. Some of their charts tell a slightly different story than what is playing out in the QQQ.

Google (GOOGL) peaked at $614.44 in March, which was followed by a large slide to just above $500 mark. Since then the price has rallied back to $608.89 (a lower high), but recently broke below the the short-term rising trendline. Given the potential for a double top, and the trendline break, there is more downside potential for Google (For related reading, see: Trading Double Tops and Double Bottoms). It's not that the stock can't or won't rally further, but the evidence isn't there to warrant buying it here. The strong drop in March and April was sizable enough to consider this stock now in an overall downtrend, and the recent lower high helps establish this. A break above $614.44 is a bullish sign, but needs to rally strongly after the breakout to warrant buying the stock. If the price does move above $614.44 aggressively, wait for a pullback to current resistance (potential future support) between $614 and $605 before purchasing. (For related reading, see: How Google's Self-Driving Car Will Change Everything.)

Apple (AAPL) is still in an uptrend, continuing to make higher swing highs and higher swing lows in price (For more on this topic, see: An Introduction to Swing Charting). From a longer-term perspective the current uptrend is getting very close to the 2012 high at $100.75 (unadjusted price). This creates a similar situation to Google, except that Apple hasn't broken lower yet. A drop below $89.50 would take out two recent swing lows and indicate a potentially larger correction is underway, potentially to trendline support near $82. On the other hand, the trend remains up since mid-2013. As long as the price makes higher swing highs and higher swing lows, stay long. If you're not in a trade yet, look to buy pullbacks (above prior pullback lows) because the stock is likely to see a burst if it does manage to break the $100.75 high. (For related reading, see: Forget Apple: Invest Your Next Tech Dollar In Asia.)

Microsoft (MSFT) has been pulling back since late July, but given the overall uptrend it remains a solid stock to own. A pullback between $42.50 and $41 presents a buying opportunity, as the price has been respecting a rising trendline making overall higher lows. Some trades may wish to limit risk by placing a stop just below this trendline. It takes a drop below $38.50 to draw the uptrend into question though, and open the door to a potentially larger decline over the next several months. (For more, see: A Primer For Investing In The Tech Industry.)

Facebook (FB) has been one of the strongest performers in the tech space and remains in an uptrend. Currently, the price is pulling back and testing the gap higher which occurred on July 24. Support for the gap is at approximately $71.33 (July 23 close) although some flexibility should be allowed here. This support area offers a buying opportunity because a stop can be placed not far below, and if the support area holds the expectation is that the price will make a higher high beyond $76.74 (For more on this topic, see: Which Order To Use: Stop-Loss or Stop-Limit). A drop below this short-term support isn't a bearish sign, though. The long-term and even short-term trend remain up, with an additional buying opportunity near $66 (short-term trendline support). A drop below $62 would be cause for concern though, creating a lower swing low and drawing the uptrend into question. (For more on this topic, see: Playing The Gap.

The Bottom Line

Technology, as tracked by the Nasdaq 100 and the QQQ, remains in an uptrend, but not every stock is worth buying on this pullback. It doesn't mean those stocks won't go higher, rather it is a matter of probabilities and choosing certain trades over others. There are no guarantees in trading, and what appears strong now could weaken, and what is weak could strengthen. Utilize stop loss orders and place them just below levels which mark a potential change in direction, such as below a major swing low in price. If the stop is triggered, that stock has weakened, and it frees up capital to invest in stronger stocks. (For more, see: How Much Exposure To Technology Stocks Should You Have?)

Cory Mitchell does not own or have interests in any of the stocks mentioned in this article. 

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