Technology stocks were showing strength in Tuesday’s session. Here are some sector names that aren’t always in the spotlight, but that are showing signs of institutional buying, according to MoneyShow contributor Kate Stalter.
The Nasdaq is up more than 5% in February, outpacing the NYSE indices. So far in 2012, all the sectors in the S&P 600 are showing advances.
While Info Tech is not the leading sector, there are some small cap techs that have scored impressive gains in recent sessions.
Tyler Technologies (TYL), which provides IT management services for government agencies, is up 10% this month. The stock has shown two days of upside trade in heavier-than-average volume recently.
Tyler has been getting support at its short-term ten-day moving average as it’s rallied to fresh price highs. The company reported fourth-quarter results after the bell on February 22, and the stock bolted 6.6% Thursday, in heavier-than-average turnover.
It’s currently extended from its most recent buy point, just shy of $33. After the earnings report, the stock was trading near $39. Its next pullback above key moving averages could offer a new buy point, though it’s too early to say what that price point might be.
Another tech that’s extended, but worth watching, is Sourcefire (FIRE), maker of anti-malware software. It vaulted nearly 25% last week after better-than-expected fourth-quarter earnings.
This is a good example of a stock whose chart was setting up nicely ahead of the quarterly results. It had been consolidating in an orderly fashion above its 40-week average—a good precursor, historically, for further price gains.
With any stock, but smaller, non-dividend payers in particular, it’s crucial to know when an earnings report is due. Unexpectedly good or bad earnings news can send a stock sharply in one direction or the other.
That’s been true for large caps as well as smaller stocks lately. Dell (DELL) and Hewlett-Packard (HPQ) recently gapped down after disappointing news in their earnings reports.
However, the up- or downswings can be even more acute for smaller stocks. Sourcefire gapped up following its earnings news, and has held most of those gains. Aggressive traders can buy a stock like this on the gap, but be prepared for a pullback as the stock digests some of those recent gains.
More conservative traders can watch how the stock acts as it consolidates following the gap-up, and be prepared to buy as it begins to re-approach its former high.
Sourcefire went public in 2007. That’s important, because companies that made their public debuts in the past dozen or so years are often among the market’s best fundamental and technical performers.
Another newcomer that sports outstanding technical is data-security specialist Imperva (IMPV), which went public at $18 in November. The stock’s price had more than doubled as of Tuesday, trading at around $37.38.
Fundamentally, the earnings track record is non-existent. That’s not uncommon in newer growth companies that put cash to work in new projects. Revenue growth has been stellar, coming in at 29% or higher in recent quarters.
Wall Street expects the company to become profitable this year, with annual earnings of 33 cents a share.
Typically, I like to focus on stocks with a record of strong profitability. However, I make exceptions on the occasional stock that’s outstanding technically, and is exhibiting better-than-average revenue growth.
That’s the case with Imperva.
It’s currently extended from its most recent technical entry point, above $34.19, so I’ll be watching for the next alternate by opportunity, perhaps a ten-week consolidation.
Finally, mid-cap Check Point Software (CHKP) has been showing some bullish chart action as it trades essentially sideways along its 20-day moving average. It hit resistance at $59.50, and volume has been muted—a good sign during narrow, sideways trade.
Check Point has a market cap of around $12 billion, and it trades 1.7 million shares a day, a decent level of liquidity.
The company is headquartered in Israel. While some pundits have fretted about possible damage to Israel-based stocks because of the current tensions with Iran, Check Point and other compatriots like Allot Communications (ALLT) have held up well, and are even showing constructive action.
Watch for Check Point to clear that resistance at $59.59, preferably in heavy volume.
The company does not report earnings until mid-April, so that catalyst won’t come into play for quite some time. However, it remains the case that geopolitical risk could affect the stock, so it wouldn’t hurt to use an extra dose of caution.
At the time of publication, Kate Stalter did not own positions in any of the stocks mentioned in this column.