With the spark in geopolitical tensions to start 2020, much of the attention of active traders has been on the cybersecurity sector. As stories of potential cyber threats that continue to dominate media headlines clearly illustrate, the underlying demand for cybersecurity solutions is increasing and will likely remain strong for the decades to come. In the paragraphs below, we'll take a look at three charts from across the sector and try to determine how active traders will be positioning themselves over the weeks or months to come.
ETFMG Prime Cyber Security ETF (HACK)
When it comes to gaining exposure to niche sectors such as cybersecurity, many active traders turn to exchange-traded products such as the ETFMG Prime Cyber Security ETF (HACK). Fundamentally, the fund comprises 56 companies that are classified as either cybersecurity infrastructure providers or cybersecurity service providers. The fund's managers utilize a rules-based methodology to select the companies, which provides a level of comfort for those who know little about this rapidly growing segment.
Taking a look at the chart, you'll notice that the price has recently moved above a key level of resistance, as shown by the dotted trendline. The breakout, marked by the blue circle, is a clear indication that the bulls are in control of the momentum and that prices are likely poised to run higher. Followers of technical analysis will also use the bullish crossover between the 50-day moving average (blue line) and the 200-day moving average (red line) to mark the beginning of a long-term uptrend.
Splunk Inc. (SPLK)
As one of the major leaders in server-side monitoring and analysis, Splunk Inc. (SPLK) offers traders an interesting trading opportunity based on the recent move above a key level of resistance. As you can see from the chart below, the price of the stock has recently moved higher, which has triggered a bullish crossover between the 50-day and 200-day moving averages (shown by the blue circle). The common long-term buy signal is traditionally used by traders to mark the beginning of a major uptrend. From a risk-management perspective, stop-loss orders will most likely be placed below $128.78 in case of a sudden shift in fundamentals.
Akamai Technologies, Inc. (AKAM)
For those who follow the top holdings of the HACK ETF, Akamai Technologies, Inc. (AKAM), may be of specific interest. Taking a look at the chart, you can see that the price faced significant resistance near $92.50 before drifting toward the support of the 200-day moving average. The bounce off of the support is a common sign that the bulls are in control of the momentum, and the bullish crossover between the moving average convergence divergence (MACD) and its signal line would likely be used as a sign of a move higher. The recent breakout beyond the dotted resistance line confirms that the bulls are indeed in control and may use the recent price action to suggest that there is adequate room remaining to the upside.
The Bottom Line
There have been few sectors that have been more in focus to start 2020 than cybersecurity. The surge in buying volume and subsequent closes above major levels of resistance suggest that the bulls should be in control of the momentum for several months to come.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.