Technology-focused stocks and ETFs continue to be top performers, with the Technology Select Sector SPDR Fund (XLK) up 7.18% over the last month. The next best performer, the Financial Select Sector SPDR (XLF), is lagging way behind with a gain of 3.97%. Hitting a new 52-week high on May 16. The trend remains up in the tech sector, which means upside breakouts in strong technology stocks are still viable trading opportunities even though these stocks have already had impressive rallies.
ON Semiconductor, Corp. (ON) is up 77% over the last year. The most recent peak was $16.06 in February. The price pulled back in March and April, forming a small descending channel, reaching a low of $13.77. The magnitude of that pullback was in alignment with the size of the last pullback in October and November. On May 9, the stock closed above a swing high at $14.87 and then proceeded to break out of the descending channel a few days later. Follow through buying on May 16 indicates the stock is well on its way to a target of $18.75 to $19. Following prior breakouts, the price has run approximately 25% before seeing a significant correction. Based on a breakout near $15, the next target is $18.75. A decline back below $14.50, and especially below $13.77, would warn of a false upside breakout so stop losses can be placed in those areas.
Jabil Circuit, Inc. (JBL) is up 76% over the last year. It peaked at $29.75 in April and has been mainly moving sideways since mid-March. On May 16 the stock closed at $29.85, above the former high, signaling a possible breakout. Compared to prior pullbacks during this uptrend, this one is the smallest, which makes it more susceptible to a shakeout. Consider placing a stop loss below $28.50, as the price could fall to $28 or well below if it reverses course. If the price falls back below $28.50, the reason for entering the trade—the breakout—would no longer be valid, so the trade can be exited. If stopped out, and further declines turn out to be weak, another long entry can be considered based on the long-term uptrend. If the price continues to rally (before pulling back to $28.50), look at placing a target 15% to 20% above $29.75, or between $34.20 and $35.70.
The Bottom Line
Technology is still hot, and so are these stocks. While they have already posted impressive gains, following these breakouts, they still could go higher. When things go bad, though, high-flying stocks can fall in a hurry. Therefore, utilize a stop loss and stick to your trade plan. Targets are based on historic rallies, which may not always be useful in predicting future movements. An alternative is to utilize a trailing stop loss. Trailing stop losses take some of the subjectivity out of picking a price target/exit and can produce large gains when a stock has a big rally. Pick your entry end exit methods and stick with them, only risking a small percentage of account capital on any trades taken.
Disclosure: The author doesn’t have positions in the stocks mentioned.