Earnings season has ushered in a wave of selling in tech stocks. The generals were taken out one-by-one and shot for daring to disappoint with their behavior last quarter. The handful of high-profile tech titans suffering at the hands of bears has sent tech tumbling to the worst performing sector of the past month and quarter.
But all’s not lost. The Technology SPDR (ETF) (XLK) is testing its 200-day moving average in what promises to be an epic tug-of-war for the longer-term trend of tech stocks.
A failure here by the bulls will officially take XLK below all major moving averages, leaving little technical reason to stay bullish on tech stocks.
And it’s not just the broader sector facing a telling test; Here are three tech stocks at a critical juncture.
Tech Stocks to Buy: Apple Inc. (AAPL)
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Apple Inc. (AAPL) kicks off our parade of earnings losers after seeing its worst quarter in over a decade.
Plagued by ailing iPhone sales, the Cupertino-based company reported its first year-over-year revenue decline since 2003. Not surprisingly, AAPL stock swooned in the days following the unsightly revelation.
The major misstep upended Apple’s budding stock recovery, returning shares to their 52-week low. In fact, AAPL stock is testing a major support level here.
The $92.50 zone has been a key floor over the past year, halting both the August 2015 China-induced crash as well as the January 2016 stock smack. If AAPL stock were to fail here, it would prove an ominous change in character.
If you’re willing to throw your lot behind the bulls, consider buying the July $95 calls for $3.25. And, oh, if the stock ends up breaching $92.50, get the heck out of dodge.
Tech Stocks to Buy: Alphabet Inc (GOOG, GOOGL)
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Alphabet Inc (GOOG, GOOGL) followed in Apple’s footsteps with a down gap of its own. While GOOGL stock’s downfall isn’t as dramatic as Apple’s in recent months, it, too, is facing a critical test. Shares are testing the lower end of its six month range at $700.
This support zone has withstood half a dozen tests over the months and may well reverse Alphabet’s downturn once again. Either way, it presents an interesting level to trade off of.
Don’t pile in here if you’re bearish on GOOGL. Wait for a breach of $700 before pulling the trigger.
If you’re a bull, this is a low-risk entry. If you’re wrong, you can bail quickly on the support break.
But if you’re right, and Alphabet returns to the middle of its trading range in the months ahead, you’re looking at about $50 of upside. I like buying the July $700/$720 call spread for $11.60.
Tech Stocks to Buy: Microsoft Corporation (MSFT)
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Microsoft Corporation (MSFT) rounds out our trio with a similar support test.
Shares of Mr. Softee are 12% off their recent highs, falling below all major moving averages in the process. And yet, support looms large in this area: The $49 zone turned two previous bear raids, halting them dead in their tracks.
Whether the bulls succeed yet again remains to be seen. Regardless, this is a low-risk spot to initiate new bull plays in MSFT stock if you’re looking to take advantage of the recent drop.
Buy the July $49 calls for $2.25. If the stock breaks decisively below $49, bid adieu to those calls and head for the hills.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
