I get one or two e-mails a week from traders that "only trade technology stocks". I love these types of e-mails and the discussions that often follow. One thing I think some subscribers might be missing is "not all technology stocks trade on the NASDAQ Composite (COMPX)". There are a few that trade on the NYSE. Any company that can "look into the ground with highly complex electrical components and find oil and gas" must use some type of technology to do that.
Seitel Chart - 60-minute interval.
Last week I highlighted shares of Seitel (NYSE:SEI) as having favorable technicals and the pullback from $20 near $16.50 might be an attractive bullish trade. A move above $17 could get a run going to $18. A break above $18 could then see a test of new highs. If you're a swing-trader that doesn't mind holding a strong stock for a few days, this stock still looks strong.
The Semiconductor Index (SOX.X) just triggered an alert at 645 and this has me pulling up a chart at current levels.
Semiconductor Index Chart - 60-minute interval.
On Monday, I "changed my mind" on covering put options in the SOX.X right near current levels. With today's break of an upward trend, I'm ready to get back on the train on a break below Monday's low of 642. One of our "key indicators" from Dorsey/Wright and Associates has this index 44% bullish, down from 70% just over a week ago. It has a "habit" of reaching the 20% level and a stop just above 670 should keep us out of trouble. A move below 639 or the 50% retracement level should get the ball rolling.
Networking Index Chart - 60-minute interval.
The NWX.X was NOT able to hold our 61.8% retracement level and that should have bullish traders still playing the waiting game. The 736 level and "old" downward trend near 700 looks like a realistic downside. If the index looks weak, the odds are the stocks in this group will lack some buyers in the short-term. Remain patient and disciplined. Let the trade come to you and get as many support levels in the MARKET, SECTOR and STOCK working in you favor.
Here's a reprint of my 10:30 market commentary from IndexSkybox.com concerning some networking stocks.
Start with the "strongest"
I'm a firm believer that the "leaders lead" and the rest will follow. Traders doing some homework in the Networking Index should be "rating" those stocks by their technical strength. Not by the media's perceived importance or aura, but by the MARKETS perceived aura.
3Com Corporation Chart - 60-minute interval.
Shares of 3Com (NASDAQ:COMS) would rate "strong" on my technical scale as it relates to other networking stocks. The stock trades above its 200-period (not 200-day MA) and it's not getting "hammered" after the Cisco earnings. I'd take note of this activity. We want to watch both ends of the snake and COMS might be the head.
Ciena Corporation Chart - 60-minute interval
This isn't biology class, but I might rate Ciena Corporation (NASDAQ:CIEN) as a stock that looks to be the snakes mid-section. It's chart isn't as technically sound, but I find the current level near $80 an attractive looking entry point to test the waters on a long, with a stop just below $77.50. We could use an "old" downward trend as a "last resort" for support and target the $88 level (38.2% retracement) or $87 (200-period MA) as our bullish target.
Understand how a snake moves
If you think about it, a sector is a "snake" and the stocks that make up the snake are different parts of the body. These stocks move much like a snakes body. The head leads, the middle portion soon follows and eventually the tail begins to move. Right now there's bad news in the group and traders would be trading a venomous snake. For that reason, we'd concentrate on the head if we were trading bullish. If you want to continue trading bearish in the group, concentrate on the tail, but watch the head. That's what will deliver the most poison to a bearish trader.