Technology Stocks Perking Up Again....Mostly

But first, a look at the chart of the S&P Technology Index (SPLY). For more than a year, this sector has been stock in a range. These stocks topped at 248.85 in early 2004, and bottomed at 199.84 in mid-2004. Since then, neither of those has been tested, as the S&P Technology index has just been back and forth within those levels. However, we are seeing some encouraging signs of upside potential. Namely, the index is above all of its key moving averages at the same time they're all pointed higher. This is actually the first time we've seen this in months, and it's a testament to the long and short-term trend finally being in agreement. The real test will be last year's high around 243. However, we suspect that stocks will fall back before that test is even made. The tech sector is pretty overextended right now, and due for a dip. As long as support is found no lower than the 50 day line (at 227.36), then we anticipate this chart continuing its trek higher. When support there is verified, that would be an ideal entry point. Conversely, buying in now could be a little disappointing. Once the next leg higher begins, we'll set a target of 265. Just remember the potential resistance at 248. Take a look at the sector chart, then read below for our thoughts on the individual technology industries.

S&P Technology Index (SPLY) - Daily

To compare apples to apples, we've applied a 50 day moving average (purple) and a 200 day moving average (green) to all three of our industry indexes. From top to bottom, they are the AMEX Semiconductor Index (SIS), the AMEX Hardware Index (HWI), and the AMEX Software Index (XWH).

The semiconductors (Intel, Texas Instruments, Applied Materials) have by far been the most impressive of late. That's the problem - they've gotten a little ahead of themselves. With such a strong runup the last few weeks, it's no surprise today to see that they're the group deepest in the red. That's not to say we don't like them - on the contrary. We just don't like them right now, at these prices. The AMEX Semi Index topped out around 72 last week, as it did back in mid-2004. So seeing the selling here could have been expected. What we like about these stocks is that they were hit the hardest in 2004, leaving them the most room to recover. A pullback to the 50 or 200 day line would be a much better entry point.

The hardware stocks (IBM, Dell, Apple) have been the steady piece of this pie, slowly cranking out gains for the better part of two years. That stability makes this industry compelling, especially when we see the way the index worked its way above the 50 and 200 day lines. We actually found support twice at the 50 day line in the last two months. Plus, this cross above the 200 day line is recent. The chart still appears to be near its bottom though, so it would be easier to enter these stocks now, rather than later. Just keep an eye out for resistance around 225.

Finally, the software stocks (Microsoft, Oracle, Symantec) look pretty solid too, provided you don't look too far back. Over the last two years, this index has been stuck in a range. From a short-term perspective, we like this chart, with support at the 50 day line and the cross above the 200 day average. However, this has been a wishy-washy arena. Just look back to the gap from early in the year, and you'll see how unpredictable this industry can be. Pick and choose carefully here.

Technology-Based Industries (semis, hardware, software) - Daily

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