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With the markets trying to put in a rebound this week, it seems a lot of eyes are on technology stocks. Next to Financials, they are the worst sector in the industry YTD. Apple (AAPL) is down over 5% this month, and search engine companies like Google (GOOG) are hurting even more so. Google has hemorrhaged more than 20% off its February highs, but that doesn’t even come close to where Research in Motion (RIMM) has given back. RIMM is down more than 50% from its January highs of 70. With its most recent dismal earnings and forward outlook, the stock dropped over 25% in the last few days alone. Is tech overdone, or is this just a shadow of what’s to come?
Fundamentals, by most part, are lagging indicators. We get fundamental information every 90 days at worst, but even if the earnings report were to come out today, the move has been made. Jumping in ahead of earnings would give you the edge if the news is positive, and increase your risk if the news is negative. Staying away allows less risk, but also less reward. Fundamentals in my mind are great when mixing with technical, but only as a measure of safety. Just remember its one day a quarter, and there are roughly 89 days that the stock wont trade on its earnings statement.
Look at the big 3 once again… Apple is truly a healthy stock, has a buy rating amongst most brokers, and is relatively safe due to its business plan, creativity, and lack of competition. Google less so, they have had to adjust their business plan due to competition and costs. RIMM is very unpredictable now, as market share for their technology is falling fast, as is revenue and earnings. Since fundamentals are yesterday and news is always tomorrow, lets look at the technicals of each.
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Apple Computer might look like a $500 a share company, but the technical analysts say different. Highs of February look like a distant relative as the stock put in fresh lows for the year earlier this week. Sure I expect it to bounce, but $300 a share is where the chart is telling me that this stock will go.
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Google is down hard from the February highs of 640, but looking at the 10/30 MA cross, the pattern is still negative. I would wait for this to change before looking to go long Google, but the Mid 500s may be as far as the stock could retrace to.
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RIMM dropped hard this year, down more than 50% from the January highs. It put in a volume spike just last week, and if we close above 30, I would consider this a bullish sign, but not for more than 10-15% upside. I suspect given the chart that this stock will languish back and forth here at recent bottoms.
Is tech a buy? Maybe, but I would look outside the Fab 3 listed here. There are plenty of companies that even in this space boast stronger charts and in my mind, less downside risk.
Good Trading! - Tom
Tom Gentile
Co founder, Optionetics
