by Daniel Putnam | May 29, 2012 9:45 am
Concerns about slower-than-expected enterprise spending have weighed heavily on technology shares in the past two months: Since April 2, the Select Sector Technology SPDR (NYSE:XLK) has returned -8.6% and lagged the -6.9% return of the SPDR S&P 500 ETF (NYSE:SPY). Last week brought little relief despite the broader market rebound, as the returns for six of the seven technology sub-sectors ranked 82nd or lower among the 99 Dow Jones industry groups.
This sort of underperformance usually attracts bargain hunters, and the tech sector has no shortage of companies that have been hit hard in recent weeks. However, nine stand out as being in dangerous technical condition that leaves them vulnerable if the broader market experiences even a modest downturn from here.
SanDisk (NASDAQ:SNDK) is a case in point. The stock has been hammered since the beginning of April, falling 32% and bringing its trailing P/E into the single digits. Still, the chart shows that SNDK could have further to fall. The stock is close to a falling-lower trend line, which — if violated — would send it into territory it hasn’t visited since early 2010. While SanDisk shares showed signs of life last week, this support line provides a clear reference point for anyone who is considering a long position in this stock.
Oracle (NASDAQ:ORCL) is another stock that is in jeopardy of falling to prices last seen in 2010. Although the stock is down nearly $4 this month and trades for a forward P/E of just 9.9, a loss of 5.2% from Friday’s close will bring the stock to $24.72, which would violate the lower support line and result in a new 52-week low. Those looking to get long in Oracle should set their stops accordingly.
Five other tech stocks are in a similar predicament. In the semiconductor sector, both Applied Materials (NASDAQ:AMAT) and ON Semiconductor (NASDAQ:ONNN) are on the cusp of new low ground. AMAT closed at $10.54, near its 52-week low of $9.70, while ON Semi, at $6.74, is less than 3.5% from a breakdown.
Juniper Networks (NYSE:JNPR), JDSU Uniphase (NASDAQ:JDSU) and Open Text (NASDAQ:OTEX) are names that investors also need to keep an eye on. The key levels to watch are $16.67, $8.59 and $46.34, respectively, versus Friday’s closing prices of $17.15, $9.83, and $48.96.
The final two charts to consider are in a different position from those already mentioned in that they aren’t in jeopardy of falling to 52-week lows. Still, both are in potential danger zones at their current levels.
The first is Checkpoint Software Technologies (NASDAQ:CHKP), which has a chart that contains three red flags: a broken lower trend line, a price below the 200-day moving average and a 200-day that is rolling over. The stock looks fine fundamentally, with rising earnings estimates, projected growth of about 11% this year and next, and a valuation that is in line with historical levels. Still, the chart indicates that caution is warranted at these levels:
Finally, Google (NASDAQ:GOOG) closed Friday’s session at $591.53. While the stock trades for just 11.7 forward estimates, the break below $600 typically has signaled trouble for Google shares in the past. The losses following a move under $600 often are modest — the past two significant breaks, in November and January, brought only 5% downturns that were quickly erased — but there have been numerous other occasions in the past five years when a drop below $600 has preceded a more significant downturn. Keep this in mind when evaluating whether Google — which is off more than 8.5% since the start of April — is a buy.
As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.
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