Two Long Opportunities Brewing in Technology

February 9, 2019

Since the December 24th low and subsequent fierce rally, many investors have been caught off-guard. It is fair to say opinions and outlooks on the market couldn't be more different. Some traders feel recent price action is a bear market rally while others believe we are heading back to all-time-highs. Regardless of your opinion, one area of the market is stronger than the rest: Technology.

Now to say that just Technology is strong is an understatement. Let's break it down. Within Technology space, Software and Semiconductors are two areas that have our attention. Since December 24th, the S&P 500 is up 15.4%, the NASDAQ up 17.6%, Semiconductors (SMH) up 22.1% and Software (IGV) up 25.0%.

Whats important to look at is not just performance but the relative strength among these strongest sectors against themselves. Software relative to the NASDAQ is nearing a base breakout since 2001. Also notice the change in velocity between this relationship since 2016. This ratio should breakout in the near-future.

Software relative to Semiconductors has been forming a base below all-time-highs since 2010. This ratio looks about ready to break out over the next few weeks.

Speaking of Software and Semiconductors, Douglas Busch, CMT and founder of ChartSmarter.com, was on RealVision yesterday discussing two specific stocks he likes within these sectors. Doug think bulls have to be excited about the price action in the NASDAQ lately. It's looking for its first seven-week winning streak since July of 2016. And more importantly, the last six weekly closes have been at the top of the weekly candle.

The NASDAQ is about to challenge its 200 day moving average for the third time. It was rejected on prior attempts in Q4 and Doug mentions all "the bearish chatter about how it's going to fail there again." He feels the third time is the charm and that the NASDAQ will break out.

Doug confirms our discussion on Software and Semiconductors as two important and leading groups within Technology. Within the Software space, Doug likes VMWare (VMW) an established name at all-time-highs that just broke above a bull flag triggering an entry at 152.50 with a target of 186.

Within the Semiconductors space, Doug likes Cree (CREE) another established name at 52-week highs that just broke above a cup-based trigger entry at 51.88 with a target of 70.