"Watching the charts - Technical analysts see tech share 'breakout'
By Binti T. Harvey, CBS MarketWatch
Thu Feb 26 16:29:17 1998
LOS ANGELES (CBS.MW) -- Faced with disappointing earnings, bleak
1998 outlooks and ongoing concern about Asia, many analysts expect
technology stocks to pull back from their recent gains.
But technical analysts say their charts show just the opposite.
The Pacific Stock Exchange Technology Index has climbed 12 percent
since the beginning of the year, even as analysts and companies alike have
expressed caution about uncertainty caused by the deterioration of Asian
economies.
"Companies have been trying to temper this enthusiasm," said analyst Rick
Berry at Argus Securities, "but the market is divorcing itself from all
fundamentals." Berry sees more risk in Asia, and expects the market will
receive a "wake-up" call by mid-March.
Technical analysts expect the exact opposite. They say technology stocks
are on the verge of a "breakout"-- a sudden, prolonged upswing.
Watching charts
Unlike research analysts, who make projections based on fundamental
financial data, technical analysts draw conclusions based on the patterns
of charts tracking price and volume movements in stocks.
Technical analysts look for stocks that trade flat for a period, followed by
a gradual decline and rebound before resettling at the previous high.
Chartists say stocks that form this "cup-and-handle" pattern are prime
candidates for a breakout. See Technical Charts
Dain Bosworth analyst Robert Dickey expects technology stocks to
break out along with the Dow Jones Industrial Average in coming weeks.
Dickey noted that the sector has been trading sideways for the past 7 or 8
months, with strength rotating among the different groups.
According to Dickey, the Amex Computer Technology Index in particular
is close to an upswing. "It's not quite there yet, but its close to its previous
highs. If it gets more than 5 points above 525, I would call it a clear
breakout," Dickey said. The index is currently trading at 522.46.
Due for rally
Richard Dickson, technical analyst for Scott & Stringfellow, believes that
while the performance of the entire technology sector could best be
described as mixed, tech issues are due for a rally. "Most of the strength
has come from semiconductor and computer issues this year, but all of the
broader-based indexes are approaching their highs. By and large, the
entire sector is close to breaking out."
Even technical analysts acknowledge the fallibility of their methods,
however. Despite the current strength of the sector, chartists caution that
some segments might be overextended. "Software is due for a modest
pullback, and there have been lots of bounces in chips and drives," said
Dickey.
Furthermore, Dickson noted, indexes tend to rise and fall with certain
large-cap issues, indicating a greater degree of strength than if all stocks
were evenly weighted.
"Ultimately, it's still a stockpickers' market," Dickey said.
Binti T. Harvey is an online reporter for CBS MarketWatch.
cbs.marketwatch.com |
