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Trading Tech Stocks In A Down Market

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It’s tough to manage risks in the stock market during earnings season when the CEO’s of major tech stocks give mixed messages to shareholders and investors.

Cisco Systems reported better than expected earnings but when CEO John Chambers gave cautious comments about his business outlook, slowing revenue and trouble in Europe, shares plunged 9%.

Intel also reported better than expected earnings earlier in the earnings season, but gave an optimistic outlook. Last Thursday Intel CEO Paul Otellini questioned Chambers thoughts at Intel’s annual investor day, and reiterated that he was optimistic about the economy, and was also upbeat about PC sales, especially to emerging markets. With IBM and Microsoft already reporting, Hewlett-Packard will have to be the tie-breaker when it reports quarterly results on May 23.

ValuEngine shows that the computer and technology sector is overvalued by 5.7% down from 9.0% a week ago, reflecting NASDAQ and SOX weakness. All five Dow tech stocks are rated a BUY according to ValuEngine so the question is where to add to long positions on share price weakness.

The Weekly Chart for the Dow Industrial Average is Negative (12,821)

My annual value level is 12,312 with quarterly and weekly pivots at 12,794 and 12,798 and monthly and annual risky levels at 13,354 and 14,032. The weekly chart stays negative on a weekly close below its five-week modified moving average at 12,991. The 200-week simple moving average is major support at 10,669.

My Fearless Prediction for the Week

All major averages ended last week with negative weekly chart profiles. The S&P 500 ended the week below my annual pivot at 1,363.2. The next downside warning comes with weekly closes below quarterly pivots/value levels at 12,794 Dow Industrials, 1,337.7 S&P 500 and 2,911 NASDAQ.

The downside is to my annual value levels at 12,312 Dow Industrials and 2698 NASDAQ. This week’s pivots are; 12,798 Dow Industrials, 1,358.4 S&P 500, 2,977 NASDAQ, 5,085 Dow Transports and 786.76 Russell 2000. My prediction remains that Dow Transports and Russell 2000 will not return to their all time highs at 5,627.85 set on July 7, 2011 and 868.57 set on May 2, 2011 in 2012.

Here are value levels, pivots and risky levels for the Dow tech stocks:

Cisco Systems (CSCO), ($16.50), plunged below its 200-day simple moving average at $18.25 Thursday morning in reaction to earnings, which came out after the close on Wednesday. The “buy and trade” strategy is to buy weakness to my semiannual value level at $13.14 for a high probability strategy--a return to my annual pivot at $17.43.

Hewlett-Packard (HPQ), ($23.15), is one of the weaker Dow components year to date, so this company needs some good news when it reports quarterly results on May 23. With good news the stock can climb up to its 200-day simple moving average at $26.20. My quarterly value level is $21.83 with a monthly pivot at $24.95.

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IBM (IBM), ($201.17), traded to an all time high at $210.69 on April 3 and is now below its 50-day simple moving average at $203.95 with the 200-day at $187.33. My quarterly pivots are $187.91 and $208.43.

Intel (INTC), ($27.63), traded to a multi-year high at $29.27 on May 2 and on Friday traded above its 50-day simple moving average at $27.89, but failed to close above that level. My quarterly value level lags at $23.01 with my annual risky level at $30.58.

Microsoft (MSFT), ($31.16), traded to a multi-year high at $43.95 on March 16 and now is forming a potential double-top with the April 20 high at $32.89. Friday’s rebound tested my monthly risky level at $31.31 and was below the 50-day simple moving average at $31.73. My annual pivots are $29.58 and $27.75.