What are we looking for?
U.S. equities have recovered more than 50 per cent of their declines since posting March lows. The Nasdaq Composite Index continues to lead North American markets higher and remains the only index in the black, year-to-date. It should be no surprise that the Technology Select Sector SPDR Fund (XLK) is the top performing sector ETF so far in 2020, with a gain of a bit more than 6 per cent, with software and computer hardware companies pushing the sector up the most.
Today we focus on stocks in the technology sector, which has maintained its upside momentum; the Nasdaq Composite is now only 4 per cent below its record high.
We will be using Trading Central Strategy Builder to search for large cap U.S. technology stocks that are showing bullish technical price momentum and strong price performance in relation to the Nasdaq Composite.
We begin by setting a minimum market capitalization threshold of US$4-billion. We wish to focus on large cap names in the market owing to the greater stability and safety that they offer.
Next, we will filter for stocks that have had a positive percentage return over the past 52 weeks, and at least a 5-per-cent price gain over the past four weeks to find stocks with upside momentum.
Last, we will add a technical analysis element to our screen by searching for stocks that have confirmed any type of bullish classic pattern as identified by Technical Insight, Trading Central’s pattern recognition tool.
We have also included year-to-date price performance, price-to-earnings ratio and dividend yield for your reference.
More about Trading Central
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and worldwide.
What we found
Topping our list is Cognex Corp., which provides machine vision products that help automate manufacturing processes. The stock has recently broken above a price resistance level at US$59 as it moves toward record highs posted in November, 2017. The stock has confirmed 19 bullish technical events and only five bearish over the past year, according to Trading Central’s Technical Insight tool.
Microsoft Corp. has the largest market cap on our list – nearly US$1.4-trillion. The stock price is within 3 per cent of its record high posted back in February, making it one of the best performing large cap tech companies of the year. As long as Microsoft’s stock price can remain above its 20-day moving average we may see a breakout to new highs.
Enphase Energy Inc. has the best performance on our list at an impressive 130.9 per cent year-to-date and almost 300 per cent over the past year. Can Enphase keep climbing after already breaking to record highs this month? The stock confirmed 15 bullish technical events and only three bearish events over the past year. It is clear that momentum remains on the upside.
Trading Central Strategy Builder provides a backtesting capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had an annualized return of 22 per cent compared with 15.1 per cent for the Nasdaq-100 index, which comprises 100 of the largest non-financial companies listed on the Nasdaq.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.
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