A narrow selection of tech stocks is hitting new highs, despite gravity generated by the coronavirus pandemic. These mavericks are attracting steady buying interest because investors and speculators view them as immune or resistant to revenue loss in the second quarter, whether through proprietary products, market advantages, or just plain dumb money optimism. Whatever the reason, these issues could ease the pain and suffering generated by first quarter portfolio losses.
It's also worth pointing out that chip stocks have shown resilience so far in 2020, with the PHLX Semiconductor Index (SOX) sitting comfortably above the 50-month exponential moving average (EMA), which often marks the dividing line between bull and bear markets. The SOX is also trading less than 300 points under February's all-time high, with top performers Advanced Micro Devices, Inc. (AMD) and NVIDIA Corporation (NVDA) leading the way. This leadership marks a bright spot in an otherwise dark and dreary period for the financial markets.
Akamai Technologies, Inc. (AKAM), a tech darling of the dot-com era, has just broken out to a 20-year high. The stock bottomed out at 56 cents in October 2002 after a furious decline began near $350 at the turn of the millennium. It bounced into the upper $50s in 2007, marking a resistance level that triggered multiple failed breakouts before a persistent uptrend set into motion in January 2019 and completed the effort.
The rally also marked a breakout above a four-year cup and handle pattern, establishing new support in the mid-70s. The first quarter decline tested that level successfully, yielding buying interest that has now surged to a new high. The on-balance volume (OBV) accumulation-distribution indicator shows healthy buying interest but still hasn't broken out above the February 2020 peak, generating a mild bearish divergence.
Zynga Inc. (ZNGA) is tapping into an at-home population that has lots of time to play games on the Facebook, Inc. (FB) platform or on their mobile devices. Zynga stock got crushed after hitting an all-time high at $15.91 just three months after coming public at $11.00 in December 2011, dropping to $2.09 in November 2012. It undercut that level by 31 cents in 2016 and turned higher, completing a double bottom reversal that initiated a new uptrend.
The rally reached 2014 resistance at $5.89 in May 2019 and broke out, but the stock spent the next 11 months bouncing along new support before last week's buying spike reached the highest high since June 2012. The next major resistance comes at the IPO opening print, so there's plenty of upside from the current level into that barrier. However, OBV is still hovering below the 2019 and January 2020 highs, setting off a bearish divergence.
DociSign, Inc. (DOCU) came public at $38.00 in April 2018 and entered an immediate uptrend, reaching $66.80 in June. The stock failed a breakout attempt in August and turned sharply lower, dropping through the IPO opening print and into an all-time low at $35.06 in November. That marked a buying opportunity, ahead of a two-wave uptick that completed a round trip into the prior high in October 2019.
A November breakout posted limited gains into January 2020, when the stock took off in a momentum-fueled advance at stalled at $92.55 in February. It fell a modest 30% into March and bounced strongly, returning to resistance at month's end. Price action completed a small-scale cup and handle breakout on April 15, lifting to an all-time high at $105.15. Unlike Akamai Technologies or Zynga, OBV for DocuSign has broken out to a new high with price.
The Bottom Line
A basket of small and mid-sized tech stocks is hitting new highs, despite pandemic headwinds.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.