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MoneyShow’s Tom Aspray takes a technical look at five technology bellwethers that have significant influence on the overall sector to see whether they can help the sector regain market leadership.

The second quarter earnings from Google, Inc. (GOOG) and Microsoft, Inc. (MSFT) rocked the tech sector last week. Then Apple, Inc. (AAPL) reported its earnings after the close on Tuesday, which gave the market a pleasant surprise.

Many have been expecting or hoping that the cyclical technology sector would again take over leadership as it did in late 2011 and in 2012. In this trading lesson, I will be taking an in-depth look at Google, Inc. (GOOG), Amazon.com, Inc. (AMZN), Hewlett-Packard Co. (HPQ), eBay, Inc. (EBAY), and Apple, Inc. (AAPL). All of these stocks have a significant influence on the overall technology sector.

I did review Intel Corp. (INTC) recently, and with the sharp drop in Microsoft Corp. (MSFT) last week, I will save its analysis for later.

By examining the monthly, weekly, and daily technical outlook for the sector, as well as these five technology giants, it should give us some additional insight on the overall sector and identify new opportunities. Let’s first look at the technology sector.

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The S&P 500 Technology Sector had a great run from the August 2011 low to the September 2012 high as it gained over 41%. The major resistance at line c was overcome in early 2012 confirming the sector’s strength.

This support was again tested in June 2012 as the overall market was forming a bottom with tech stocks being some of my favorites. The tech sector formed a doji at the mid-September high (see circle) and a low close doji was triggered the following week. At the post election lows, the key support was again tested but the sector was no longer a market leader.

The weekly relative performance completed its bottom formation in the summer of 2011 as it moved above its WMA. The RS line shows a clear pattern of higher highs up until the April 2012 high but just made a marginal new high in September 2012. The break of the uptrend on October 5 (see vertical line) was a sign of weakness, and it soon dropped below the early July lows confirming a new downtrend. The RS line continued to make new lows into the middle of April before it bounced back to its WMA and the downtrend, line e.

The RS line needed to rally over the past few weeks to complete a bottom formation, but instead it plunged to new lows. It now needs to move above the resistance from the past few months to signal that it is again a market leading sector.

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Let’s first look at Google, Inc. (GOOG) where the weekly chart shows a pattern of higher highs and higher lows going back to the summer of 2012 (lines a and b). On the weekly chart, it is evident that GOOG often turns lower when the weekly starc+ bands are reached or exceeded (see circles).

The week ending May 18, 2013, the close was $909.18, which was above the starc+ band, and over the next three weeks, GOOG dropped to a low of $847.22. The starc- bands have also provided good support as they were tested during the correction last fall.

GOOG moved above the 2012 high at $774.38 in early February, which was another good signal from the yearly analysis. The key resistance now is in the $950-$960 area, which corresponds to the upper boundary of the trading channel, line a, and the weekly starc+ band.

The monthly technical studies (not shown) are all positive and have confirmed the price action. There is monthly support from June at $847.22. The weekly relative performance closed last week just below its WMA but is still well above the support at line c. The RS line did confirm the new highs and the higher highs indicate that it has been outperforming the S&P 500.

The on-balance volume (OBV) also made a slight new high with prices, but volume increased significantly on the downside last week and the OBV is now testing support at line c. It would take the formation of a new downtrend for it to turn negative.

NEXT PAGE: Google & Amazon

Tickers Mentioned: GOOG, AMZN, HPQ, EBAY, AAPL