Technology stocks have been on a tear recently. Traders looking to catch the rally should look to the stocks that have just begun breaking out.
has gained almost 11% from its lowest close of the year in mid-June. That beats the
roughly 8% gain since its mid-June low.
Much of what is driving tech’s gains has been related to interest rates. Markets see a higher likelihood that inflation has peaked, and that the Federal Reserve will soon slow down the pace of interest-rate increases. Meanwhile, the yield on the 10-year Treasury bond has slipped since mid-June. Lower bond yields make future profits more valuable—and many fast-growing tech companies are valued on the basis that they’ll churn out a chunk of their profits many years in the future.
(NFLX) is a good example. The stock is up about 31% from its June low. At $218 a share, it’s now above its 50-day moving average of $187. That signifies that market participants are now willing to buy the stock at levels above a longer-term trend. That signals increased confidence in the stock’s outlook.
It’s not just lower bond yields juicing the stock. Netflix’s earnings last week revealed fewer subscriber losses than analysts had anticipated, while management said it expects subscriber growth in the current quarter. Analysts are also predicting the company will rely less on upping its spending to accrue new subscribers and grow revenue, which will allow profit margins to expand. Earnings per share are expected to compound at annual rate of about 15% for the next three years, according to FactSet.
Spotify (SPOT) is another example of a tech stock that is starting to break out. It has climbed about 20% from its 2022 low hit in mid-May. At $108, it’s above its 50-day moving average of about $105. Plus, buyers have frequently stepped in this year in the low-$90 area, to bring the stock upward. John Kolovos, chief technical strategist at Macro Risk Advisors, wrote that the stock could have easily hit a “double bottom” in the low-$90 area.
Spotify’s earnings are due out Wednesday. That will be a key catalyst keeping the stock trading at healthy levels, or it could send the price tumbling again.
(AMZN) stock is also looking better. It has jumped about18% from its June bottom and, at $121, it is above its 50-day moving average of $113. A “bullish breakout” is in play if the stock can continue upward, Kolovos wrote.
Earnings for the e-commerce giant are coming Thursday.
This all may sound rosy, but there is plenty ahead that could complicate tech stocks’ upward trajectory. Tuesday’s trading is evidence of that: The Nasdaq slid more than 1% after
(WMT_ earnings warning dented broader market sentiment.
In addition, many tech companies report earnings in the next few weeks, and the Fed’s next interest-rate decision on Wednesday will be key for both the bond and stock markets. Meanwhile, all three of these tech stocks are still trading below their 200-day moving averages. In order for anyone to become even more bullish on these names, surpassing those levels will be key.
Write to Jacob Sonenshine at [email protected]