Technology Stocks Setting Up to Provide Solid Returns?
This is a bold statement, but worth making: for investors looking for a decent trade for the short term, technology stocks could be a great place to be. Charts say they are setting up to surge.
Technology stocks had a great start to 2021. But unfortunately, just one month into the year, these stocks saw rigorous selling across the board, and investor sentiment turned dire.
Between February and mid-June, technology stocks traded sideways, with wild swings and with no clear direction whatsoever.
However, things are starting to look different…and there’s a possiblity of upside in the near term.
This Chart’s Really Worth a Look
Where are technology stocks going next?
Just look at the chart below of the Nasdaq Composite Index. Almost all the major technology companies are components of this index, so it gives us a decent idea of what’s really happening and where technology stocks could be headed.
Chart courtesy of StockCharts.com
There are a few exciting developments on the chart that shouldn’t be ignored.
The first chart elements worth looking at are the 50-day moving average (MA) and the 200-day MA. Both of these MAs are currently below the index. This suggests that short-term and long-term trends on the Nasdaq are pointing upwards. Don’t forget: the trend is your friend.
Chart Pattern Says Nasdaq Could Surge Past 15,000
Over the past few months, a technical analysis pattern called an “ascending triangle” was forming on the Nasdaq chart. This chart pattern develops when there’s an uptrend but the price has difficulty going over a certain resistance level.
In this case, that resistance level for the Nasdaq was around 14,250.
Know this: technical analysts see this pattern as a bullish one; they expect price escalation once the resistance level breaks.
Guess what? The Nasdaq recently broke above the resistance level. This is bullish.
You have to ask: how high could the Nasdaq go? To predict how far it could reach, technical analysts take the widest part of the triangle and add the length above the breakout level. The breakout level is where the price breaks above the resistance level.
So, the widest part of the ascending triangle above is the price action between March and May 2021, and that’s roughly 1,300 wide. Adding 1,300 to 14,250 gives us a target on the Nasdaq around 15,550. This is six percent above where the index currently stands.
Lastly, pay attention to the volume traded on the Nasdaq.
Notice something interesting at all? Between February and June, volume declined a bit. This indicates that investors didn’t really panic-sell, and that the move in technology stocks was instead based on profit-taking. Had there been panic, we’d see the volume surge.
Going forward, if the volume increases, it will only make the bullish thesis even stronger.
Dear reader, charts are pretty clear that the NASDAQ Composite Index could roar for the next little while. This is nothing but bullish for technology stocks.
However, this needs to be said; while charts are bullish, it’s important to pay attention to the fundamentals of companies as well. While as a whole technology stocks could go higher, if an investor is picking individual names, they need to be careful.