3 Tech Stocks to Buy as the Sector Breaks Out

tech stocks - 3 Tech Stocks to Buy as the Sector Breaks Out

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The technology sector was poppin’ this morning, breathing new life into the growth area of the market. My morning scans are littered with tech stocks primed for upside breakouts, and it demands our attention for today’s gallery. I’m going to share my three favorite setups to consider trading.

Sector rotation has provided consistent fuel for the stock market’s ascent. When one area falls out of favor, another emerges to pick up the slack. But, as is true of all rising-tide environments, the out-of-favor sector never remains so. Eventually, buyers return to pull it back onto the leaderboard. We’ve seen just such a dynamic play out in tech stocks.

If today’s strength can persist, we should see the technology sector play catch up. Here are three companies catching my eye:

After the usual chart review, I’ll suggest an options trade to profit.

Tech Stocks to Buy: Alphabet (GOOG, GOOGL)

Alphabet (GOOGL) stock chart with bullish breakout setup.

Source: The thinkorswim® platform from TD Ameritrade

If you’re looking for a stock that held firm during the recent tech rout, then Alphabet is your play. The search giant stayed above its rising 50-day moving average and quickly fired back after testing it last month. Since its return to previous highs, we’ve seen a lovely little high base pattern form that’s allowed traders to digest recent gains.

With Friday’s pop, GOOGL is now itching for a breakout over $2,400. If you want confirmation, then wait for a push above it before pulling the trigger. I would use $2,500 as the first upside target.

To combat the lofty price tag, consider using options spreads. Given the lower implied volatility environment, I suggest bull calls.

The Trade: Buy the July $2,440/$2,460 bull call for around $7.50.

Applied Materials (AMAT)

Applied Materials (AMAT) stock with high base breakout setup.

Source: The thinkorswim® platform from TD Ameritrade

The semiconductor industry has aided the resurrection in the technology sector. The Semiconductor ETF (NASDAQ:SMH) has been percolating since carving out a double bottom last month. SMH is up 2.10% this morning, outpacing the overall sector’s gain. In sizing up the industry holdings, Applied Materials stands out as a top pick for two reasons.

First, I love the strength of its previous upswing. Once prices breached the 50-day moving average, buyers swarmed. Second, the past week of churn has created a compelling high base pattern with a clear trigger point at $141. For a price target, consider $150.

Once again, the low implied volatility readings point to call spreads as the smart play.

The Trade: Buy the August $140/$15o bull call for $4.

Tech Stocks to Buy: Cisco (CSCO)

Cisco (CSCO) stock chart with bullish breakout pattern.

Source: The thinkorswim® platform from TD Ameritrade

Cisco rounds out today’s top tech stocks to buy with a clean breakout pattern of its own. The past two months of neutrality allowed the 50-day moving average to play catch-up. The reaction to last month’s earnings report was exciting. After a large down open, buyers snatched up the stock, and we ended the session with a powerful bullish engulfing candle.

The stock’s price has toed the bullish line ever since.

This morning’s 1.4% ramp brings CSCO to the doorstep of the $54 resistance zone. Given the fresh momentum behind the tech sector, this is a breakout attempt that has high odds of success. The cheaper price tag of Cisco shares allows for a long call play if you’re comfortable with a more aggressive directional bet.

The Trade: Buy the August $55 call for $1.70.

On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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