On a relative basis, Information Technology started the year at 52-week lows. As we sit here in March, things look a bit different.
We can’t ignore the fact that Tech is still stuck below the relative highs from the dot-com bubble (which we’ve covered extensively in these outlooks and in various market updates). Neither can we ignore the rapid reversal we saw in January. It’s not a very bold or fun call to make on the largest and most important sector in the market, but a neutral approach to Tech is the only position that makes sense until we see a resolution from this multi-year consolidation range.
The sector is a mixed bag – some stocks are breaking out to new highs, and we can selectively own these names that are showing relative strength.
Cadence Designs is one we like. Look how it spent the last year consolidating above those long-term Fibonacci retracement levels. If it’s above 190 we want to be long with a target above 240.
Arista Networks is another that could get going. If it’s above 124, we want to be buying with a target of 200.
Applied Materials successfully backtested the neckline of an inverse head-and-shoulders reversal pattern. We think it’s headed back to 145 with a risk level at 112.
Less impressive is Akamai, which just broke down to new multi-year lows. We want to be selling rallies toward 80 with a target of 62. The short trade is wrong if prices are above 82.
Intel is a textbook example of a consolidation resolving in the direction of the underlying trend. This is not an example of the type of stock we want to be buying. New lows are not bullish.