The networking and communication devices group has been one of the best performing groups recently. This is an important group in the technology sector, as it pertains to the infrastructure that is needed to transport the huge proliferation of multimedia and Web 2.0 technologies that have emerged over the past few years. The thirst for increased bandwidth seems to be limitless at this point, and this group remains in a favorable fundamental position. While the fundamental backdrop is positive, it makes sense for traders to weigh the technical picture as well. Many of these stocks have rallied sharply over the past month, and may be in need of a breather.
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Riverbed Technology, Inc. (Nasdaq:RVBD), for instance, has rallied quite sharply over the past two weeks, tacking on over 20% in that time. This followed a very sharp rally in December as well. Stepping back, RVBD recently cleared a larger base that could prove to be an important support level moving forward. The volume on this breakout was healthy as well, but RVBD is also beginning to become overbought and may need to consolidate some of the recent gains. The $25 level would be a key level to watch moving forward in case RVBD pulls back to test the breakout.
Another stock that has been performing very well recently is Finisar Corporation (Nasdaq:FNSR). FNSR is trading at fresh new 52-week highs and easily cleared some lateral resistance on this rally. It also rallied quite sharply in December, following a similar pattern to RVBD. Overall, the technical picture looks quite strong for FNSR as well, but it is also overbought at these levels, and could be in need of some consolidation. While buying at these levels may prove to be successful on longer term time frames, there is also a very high risk that FNSR pulls back from here to consolidate some of the recent gains.
F5 Networks, Inc. (Nasdaq: FFIV) is another stock in this group that has rallied sharply over the past few weeks. However, there is an important difference in this chart versus the others. While FFIV has been just as strong over the past two weeks, it has yet to clear its prior highs. It would be a difficult task for FFIV to clear the $55 level here while it is overbought. More likely, it will need to consolidate as traders who took advantage of the recent move lock in some profits.
No discussion on the networking sector would be complete without taking a look at Cisco Systems, Inc. (Nasdaq:CSCO). This is still the largest network company in the world and has reached into just about every communications technology in existence. This stock has performed well over the past year, almost doubling in price from its March low. It also has taken advantage of the interest in the group over the past few weeks, rallying from the bottom of an existing channel to almost the top. This range spans from $22.50 to approximately $24.50 and is part of a larger base it has been building. Much like FFIV, CSCO remains below prior highs and may be in need of some rest. The levels to watch here are the boundaries of the existing range to see if CSCO can emerge from the existing base.
The recent strength in the networking group bodes well for continued strength, but this group has come pretty far in a short time and may be getting tired. Often when a stock surges too quickly, it is very difficult to sustain the breakout as traders who are sitting on some quick gains are usually quick to protect their profits. This is one of the key psychological themes in the markets. Stocks are constantly switching hands between participants, and traders can often take advantage of situations in which one group begins to outnumber the other by using technical analysis. While the fundamental and longer term technical outlook is pointing to continued strength in this group, the near-term picture is showing some signs of exhaustion and possible consolidation. This is one group that could become a leader over the next market cycle though, and should be watched moving forward. Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing did not own shares in any of the companies mentioned in this article.