(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Technology stocks have been putting together a solid 2018 as measured by the Technology Select Sector SPDR (XLK) rising by nearly 6.5% versus a flat S&P 500. The group may be poised to increase further, with the technology ETF signaling a technical breakout of a significant downtrend. It could send the ETF back to its previous highs around $71, about 5% higher.
Shares of Activision Blizzard, Inc. (ATVI) and Adobe Systems Inc. (ADBE) are signaling breakouts, while Micron Technology, Inc. (MU) is on the verge of one. All three could be looking for even more significant gains between 9 and 15%.
The chart below shows the technology ETF has recently broken out of a multi-month downtrend which formed in early March. The next level of significant resistance comes around the all-times near $71, about 5% higher than its current price around $68. Additionally, the relative strength index (RSI) has broken out as well and supports the bullish uptrend in the price of the ETF.
Activision also appears to be breaking out, after putting in a solid bottom at technical support around $64.50. The chart shows that the stock put in a technical double bottom pattern around late March and late April, a bullish reversal signal. Additionally, the stock has also broken a downtrend as well. It would suggest that shares could rise back to the next significant resistance around $80, an increase of about 14.5%, from its current price around $69.25.
Adobe has broken a critical resistance level at approximately $230 and has been steadily trending higher since December of 2017. Since that time, shares of Adobe have broken out to new highs on three occasions, with two of three incidents resulting in a rise of 9%. Should that happen here, Adobe could rise to about $255, which also happens to be the upper range of Adobe's trading channel.
Micron is very close to breaking out, entering what looks to be the final phase of a falling wedge—a reversal pattern. Should shares break out, and begin to rise, the stock could look to rebound to roughly $54, a jump of about 12% from its current price around $48.30. The RSI is also flashing positive signs and appears to have bottomed around 40, marking the fourth occasion since the middle of March, despite the stock continuing to fall, a bullish divergent signal. It serves as yet another indication the stock may be getting set to reverse.
Should the technology group continue to rebound, it is likely to help not just these three stocks, but potentially the entire stock market.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.