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The Nasdaq-100's Most Oversold Stocks
10/15/2012 11:15 am EST
A closer look at technology, which has sold off strongly of late, pulls up a few stocks and a key ETF that could lead the seasonal rebound in the sector, writes MoneyShow's Tom Aspray.
Last week was a rough one for the tech sector, and the pessimistic comments from Advanced Micro Devices (AMD) likely accelerated the selling, as its shares were down over 14%. The hard-disk makers were also sold after two key players were downgraded by a Citigroup analyst.
Given the decline over the past three weeks, it should not be surprising that many stocks are much closer to the lower weekly Starc- bands. Typically, when a stock or ETF closes at or below its lower weekly Starc- band, the probabilities are high that it will either move sideways or rebound for a few weeks.
When the weekly Starc- bands coincide with other important support levels, and the longer-term technical readings are positive, then a test of the weekly Starc- band can also be a good buying opportunity.
The table reveals that ten of the Nasdaq-100 stocks are with 4% of their weekly Starc- bands, including the Nasdaq-100-tracking PowerShares QQQ Trust (QQQ), which closed at $66.68, just 2.5% above its weekly Starc-band at $64.95. Apple (AAPL) is the second oversold stock on the list, and its weekly Starc- band is very close to my initial buy level.
For those who are not invested in the tech sector, here are one tech-heavy ETF and three technology stocks that you should take a look at during the current market weakness.
Chart Analysis: The Powershares QQQ Trust (QQQ) tested the 38.2% support at $66.54 last week and closed near the lows. Since QQQ peaked on September 19 at $70.58, it has lost 5.5%.
- The daily uptrend is at $65.60, with the 50% retracement support and the weekly uptrend (line a) in the $65.30 to $65.10 area.
- The weekly relative performance reached the March highs last month before turning lower.
- The RS line dropped below its WMA at the end of September, and is now testing stronger support.
- The weekly OBV did confirm the highs, and is now testing its WMA.
- The OBV is well above stronger support (line c), while the daily OBV (not shown) is below its WMA.
- There is initial resistance at $67.50 to $68.
NetApp (NTAP) is a $10.5 billion designer and manufacturer of network storage devices that has been declining since February 2011, when it peaked at $61.02. It has dropped over 50% from this high.
- The major 61.8% support from the 2008 lows at $10.39 has been broken, as NTAP is just above longer-term support at $27.55.
- The relative performance formed a very slight divergence at the 2011 highs (see circle), and shows a long-term downtrend (line f).
- The RS line has just made marginal new lows.
- The weekly on-balance volume (OBV) rose strongly from the May lows, and marginally broke through its long-term downtrend.
- The OBV is still holding above its WMA, but is currently declining.
- The daily OBV (not shown) is below its WMA, but is well above the May lows.
- NTAP reports earnings on November 14.
NEXT: Which of These 4 Plays Are Buys Now?|pagebreak|
CA Technologies (CA) is an $11.6 billion application software company that yields 4%. The weekly chart shows a broad trading range for most of 2012.
- The weekly Starc- band is at $24.10, with the 50% support at $23.36.
- The former downtrend (line a) is now support in the $22.70 area, with 61.8% support at $22.27.
- The relative performance dropped sharply in July and shows a series of lower highs.
- The OBV shows a long-term uptrend from the 2011 lows (line d) that is now being tested..
- A higher close this week would be the first sign that a low may be in place.
- There is first resistance in the $25.60 to $26 area.
- CA reports earnings on October 25.
MicroChip Tech (MCHP) is a $6.14 billion specialized semiconductor company that currently yields 4.4%. The weekly chart shows what may be a long-term continuation pattern (lines e and f).
- The weekly Starc- band is at $30.73, with chart support (line f) just slightly lower at $30.65.
- The early 2012 low was $30.23, with the 2011 low at $29.30.
- The relative performance has dropped below its recent lows (line g), and is still in a solid downtrend.
- The weekly OBV is below its WMA, but is still holding above long-term support (line i).
- The OBV needs to move back above its WMA and resistance (line h) to confirm that the correction is over.
- There is resistance now at $33.70 to $34.40.
- MCHP reports earnings on November 8.
What it Means: The technology sector, and specifically the semiconductor subsector, both typically bottom in October.
The charts of these three technology stocks need a couple positive weekly closes to indicate that their corrections are over. Of the three, NetApp (NTAP) and CA Technologies (CA) look the closest to bottoming.
How to Profit: For PowerShares QQQ Trust (QQQ), go 50% long at $66.34 and 50% long at $65.74, with a stop at $63.77 (risk of approx. 3.4%).
For NetApp (NTAP), go 50% long at $28.34 and 50% long at $27.56, with a stop at $26.74 (risk of approx. 4.3%).
For CA Technologies (CA), go 50% long at $24.24 and 50% long at $23.86, with a stop at $22.94 (risk of approx. 4.6%).
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