The realm of disruptive technology companies seems intimidating and elusive for most investors due to the complexity of the underlying products and services. Rapid advancement and innovation in areas such as 3D printing, mobile payments, big data, analytics, clean energy, fin tech, health care innovation, the internet of things, cybersecurity, cloud computing, and robotics and artificial intelligence are difficult to stay abreast of – even for the most veteran tech follower.
Luckily for investors, exchange-traded products such as the one discussed in this article are designed to track these very segments. We'll take a look at a few charts and try to determine how active traders will be looking to position themselves to take advantage of a move higher over the coming weeks or months.
ALPS Disruptive Technologies ETF (DTEC)
Companies within the niche segments mentioned above are changing the way that we live and do business. As an investor, it is a wise idea to position yourself to capitalize on this macro trend, and exchange-traded products such as the ALPS Disruptive Technologies ETF (DTEC) could be one way to achieve your goal. Fundamentally, the fund has an interesting weighting to the segments listed in the introduction and carries a reasonable management fee of 0.50%.
As you can see from the chart below, the price has recently moved above a key level of resistance, as shown by the dotted trendline. The breakout suggests that the bulls are in control of the momentum and that traders will likely protect their positions by placing stop-loss orders below either the 50-day or 200-day moving averages, depending on risk tolerance. Followers of technical analysis will also likely look to the bullish crossover between the long-term moving averages, shown by the blue circle, because it is a common long-term buy signal and is used by many to mark the beginning of a major long-term uptrend.
Stratasys, Inc. (SSYS)
Advancements and use cases for 3D printing have fallen out of the news in recent months, but based on the chart of Stratasys, Inc. (SSYS), the largest holding of the DTEC ETF, now could be the time to look again.
As you can see, the bulls have recently sent the price above the resistance of a defined channel pattern, which suggests that the bulls are in control of the momentum and that prices could be headed sharply higher from higher. The recent uptick in volume will likely be used by traders as confirmation of the renewed interest, and they will likely place buy orders as close to the dotted trendline as possible. From a risk management perspective, stop-loss orders will most likely be set below the swing low near $27.
The growing importance of cybersecurity is unquestioned given the number of recent news stories of companies that have had their systems compromised by hackers. One of the top holdings of the DTEC ETF that could be worth a closer look is Proofpoint, Inc. (PFPT).
As you can see from the chart below, the price of the stock is currently trading within a channel pattern. Using the charts mentioned above as leading indicators, traders will likely hold a bias to the upside when it comes to Proofpoint and likely set their buy-stop orders above $130. A breakout from the chart pattern would likely act as a catalyst to a sharp move higher, and many will likely look to protect against a sell-off by placing stop-loss orders below the support of the 50-day moving average, which is currently at $116.61.
The Bottom Line
The strong theme of disruptive technology is one that should be well represented in most portfolios. However, due to the complexity of the field, many investors feel intimidated and tend to shy away.
As the charts discussed above demonstrate, niche funds such as DTEC could offer an interesting way to gain exposure. Those looking for specific companies to buy, investigating top holdings of niche ETFs could be an interesting technique for identifying candidates worthy of investment.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.