Cloud computing and data storage companies have traded well as a group for more than a year now. Just look at the First Trust Cloud Computing ETF (NASDAQ:SKYY), which is up more than 30% in the last 12 months. I’ve traded a few related companies in that time, and one I currently recommend is NetApp Inc. (NASDAQ:NTAP).
Looking at the year-to-date chart (below), a few things jump out at me. The first is that the stock has been consolidating under $40 for much of the last two months. It broke that price and even $41 a few times, but pulled back each time. Most recently, it dipped briefly below $39, but that move came on below-average volume. In fact, it was the one of the lightest volume days in the last couple of weeks.
As you can also see, NTAP has bounced nicely since then and is right on the verge of reclaiming both the $40 price level as well as its 50-day moving average. And with the trading channel narrowing, I expect it to punch through the upper end of its channel and make new highs as it heads toward $45.
If the stock were to weaken, I would re-evaluate on a close under $39. That’s right around the May 24 low after earnings, and it could open up additional downside depending on the circumstances at the time.
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