Two Tech Picks for Your Portfolio

By  JUL 17, 2013 12:15 PM

This is a big week for top technology companies reporting quarterly earnings. Take a look at some candidates to buy on a pullback.


The moderately lower close Monday weakened the short-term outlook as 1,539 stocks were up with 2,466 down. This has caused most of the volume and market internals indicators, like the McClellan Oscillator, to turn lower.

The market is now waiting for the testimony of Ben Bernanke, which could be a good excuse for traders to take profits, but the futures are higher in early trading. I'm sticking with Monday's view that it was not the time to buy the market.

Some industry groups, like the regional banks, peaked six or seven days ago and some are already getting close to first good support. The extent of the correction in some of the key sectors and industry groups will help isolate the new market leaders.

The volume action in the technology sector favors buying a pullback and several of the previous tech recommendations have done well. One small-cap tech stock should also be considered as it appears to have completed a yearlong bottom formation.

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Chart Analysis: The Select Sector SPDR Technology ETF (NYSEARCA:XLK) peaked at $32.41 in May and then dropped to a low of $30.20 in June.
Automatic Data Processing Inc. (NASDAQ:ADP) has had a stellar run, so far in 2013, as it is up 28.3%. Last week the May high at $72 was overcome.

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Intuit Inc. (NASDAQ:INTU) was recommended a week before the June lows and is now challenging the mid-April highs at $65.30.
Micrel Inc. (NASDAQ:MCRL) is a $625 million analog integrated circuit company that reports earnings on July 25.
What it Means: In the recent sector report Red-Hot Summer Sectors, the technology sector was identified as a sector that could lead the market higher going into the end of the year, if not longer, but the weekly RS analysis needs to complete its bottom formation first.

One way to participate is to buy the Select Sector SPDR Technology ETF, and I also have again recommended the PowerShares QQQ Trust (NASDAQ:QQQ), which also gives exposure to the biotechnology sector.

How to Profit:

For the Select Sector SPDR Technology ETF, go 50% long at $31.58 and 50% long at $31.04, with a stop at $29.83 (risk of approximately 4.8%).

For Micrel Inc., go 50% long at $10.38 and 50% long at $10.12, with a stop at $9.76 (risk of approximately 4.8%).

Portfolio Update:

Should be 50% long Intuit Inc. at $58.43 and 50% long at $57.78. Sell 1/3 of the position at $65.16 or on a stop at $64.64. Then use a stop on the remaining position at $59.63.

Still long Automatic Data Processing from $55.54 with a stop at $68.62. I recommended selling half the position at $61.42 in February.

Since the market has rallied so sharply since late June, cancel any open recommendation made prior to July 1.

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Editor's Note: This article was written by Tom Aspray of MoneyShow.

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No positions in stocks mentioned.

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