STOCKS

With market conditions improving, the tech sector is back in favor, and their positive chart patterns and superior relative performance analysis make these leading equities among the best ones to buy.

The improvement in the technical outlook for the Select Sector SPDR - Technology (XLK) discussed here last Friday turned my focus back on the technology sector. If the worst of the market’s decline is over, then those tech stocks with the best long-term charts and superior relative performance analysis should be a part of most portfolios.

The proposed bailout of Spanish banks has led to further optimism for stocks over the weekend, as has the better-than-expected economic news out of China. Stock index futures were sharply higher in overnight trading but have since given up some of the gains. Still, it is the close on Monday that will be most important.

A positive close, and more importantly, positive Advance/Decline (A/D) numbers on Monday could be enough to confirm the bottom formations for the A/D lines. Two of the tech giants, Intel Corp. (INTC) and Microsoft Inc. (MSFT), have been among my favorites since late last year.

Apple Inc. (AAPL) is set to announce product updates at today’s developer conference in San Francisco. AAPL came within 0.5% of my buy level from May 7 before rallying sharply and it now looks unlikely that the May lows will again be tested. Therefore, aggressive investors will need a new strategy for buying Apple.

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Chart Analysis: The Select Sector SPDR - Technology (XLK) dropped as low as $27.04 last week before closing at $28.33.

  • XLK appears to have successfully tested the long-term support from 2011 in the $26.88 area
  • Daily chart shows that the 38.2% Fibonacci retracement support from the October lows was broken. The 50% support level is at $26.62
  • Daily relative performance, or RS analysis, has been basing for the past two months, line b, and has moved above its weighted moving average (WMA)
  • Daily on-balance volume (OBV) is barely above its declining weighted moving average and is still below its downtrend, line c
  • The weekly RS analysis and weekly on-balance volume (OBV) studies (not shown) look more positive

Apple Inc. (AAPL) briefly dropped below its 20-week exponential moving average (EMA) four weeks ago, coming very close to the weekly Starc- band before rallying almost $60. AAPL makes up 18% of the XLK portfolio.

  • The decline took APPL very close to its 38.2% Fibonacci support level at $516 with the 50% support level at $476.44
  • The RS line tested its weighted moving average before turning higher. There is long-term support at line f
  • Weekly OBV has turned up from its rising weighted moving average and confirmed the highs early in the year
  • Daily OBV (not shown) has moved back above its weighted moving average but volume was not impressive at the end of last week
  • 50% retracement resistance, as calculated from the high at $644, is at $582.50 with further chart resistance at $594-$600
  • A move above the post-earnings high in the $618-$620 level, line d, would be very positive
  • Minor support is at $560 and a drop below $548.40 would violate the short-term uptrend, suggesting a drop back to the prior lows is possible

NEXT: Best Buying Levels for Intel (INTC) and Microsoft (MSFT)

Tickers Mentioned: XLK, AAPL, INTC, MSFT