Heightened awareness around the need for products related to cybersecurity has created one of the strongest macro-level trends found anywhere in the public markets. In this article, we'll take a look at several charts related to this growing sector and try to determine how active traders will be positioning themselves over the weeks or months ahead. (For a quick refresher, check out: 3 Ways to Trade Cybersecurity in 2018.)
Given the increasing popularity of exchange-traded products such as the PureFunds ISE Cyber Security ETF, it is now possible for retail investors to gain exposure to a basket of stocks from a niche sector such as cybersecurity. HACK is undoubtedly the most popular, with net assets of just over $1.65 billion. Taking a look at the weekly chart below, you can see that the fund has been trading along a defined ascending trendline since early 2016, and there doesn't seem to be a reason to expect the momentum to reverse any time soon. Active traders will likely look to place their buy orders as close to the trendline as possible to maximize the risk/reward and protect against sell-offs by placing stop-loss orders below $34.24 in case of a sudden shift in underlying fundamentals. (For more on this topic, check out: Why Is Cybersecurity So Important for Investors and Advisors?)
With a weighting of 4.90% of the HACK ETF, Fortinet represents the fund's largest holding. Taking a look at the chart below, you can see that the price of the stock has predictably moved along a major ascending trendline and that the recent bounce has led to a significant breakout beyond two short-term levels of resistance (illustrated by the horizontal trendlines). The recent break higher (shown by the blue circle) is a technical buy sign and will likely be used as confirmation of a continued move higher. Traders will likely be watching for a continued rise over the coming weeks and protect their long positions by placing stops below either the 50-day moving average ($66.55) or the ascending trendline, depending on risk tolerance. (For more, see: How to Trade the Rise in Cybersecurity Stocks.)
After taking a look at the charts of the top holdings of the HACK ETF, it is interesting to note that the patterns all look nearly identical. The chart of CyberArk Software, on the other hand, is one that stood out because it recently broke below the ascending trendline, which suggested that the uptrend was in jeopardy of reversing. Notice how the recent jump in the price has reclaimed the uptrend and how the price is now back above the influential levels of support. Active traders will likely want to keep an eye on CyberArk Software shares to see if the buying pressure will continue to dominate. (For more, see: 13 Ways to Invest inCybersecurity.)
The Bottom Line
Fundamentally, investing in cybersecurity stocks seems to be closely aligned with one of the largest global issues in 2018. The underlying demand resulting from increased spending will likely continue to keep the share prices of the components of the HACK ETF above their key trendlines. Active traders will likely want to keep this fund and its components on their watchlists because the patterns represent some of the best buying opportunities around. (For more, see: 8 Stocks for the Cybersecurity Boom: Goldman.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.