Tech Train Travel

So far this year, the equity market recovery has seen three solid weeks of stock gains.  A clear perspective has come with the New Year as less global anxiety has pushed the $VIX fear index below 20 for the first time since July.

The broad market indexes, the Dow and the S&P 500, are both up a respectable 4% since January 1st.  Those are great returns after three weeks but are only half the gains found in tech stocks.  The Nasdaq is up 7% Year to Date, leading beaten down shares on the rally higher.

Broad Breakout Bonus

The Quiet Money Indicator, the OVI, in positive territory for more than a month, accompanied the QQQ breakout Bull Run above $59 resistance.

The sector as a whole has responded positively, as market sentiment has turned from negative to merely glum for some.  Signals that U.S. economic data statistics are trending in the right direction has supported decisions to buy stocks after the market discount sale.

Two Ways Too Win

It seems that Nasdaq stocks gain from both pent up purchasing demand to update corporate technology on the one hand, and a disconnect from the potential downfall risk seen in financials on the other.

The Quiet Money Indicator advisory has two profitable tech plays to show the way…

An early January long play in INTEL is up over 30% since entry.

The OVI had been positive, telling us that the inside insiders were bullish. But that in itself is NOT enough reason to buy.  A breakout rally above $25.80 resistance was the pattern play to pile in.

Option Action – INTC July $20 Call @ $4.95

Instead of tying up valuable cash to purchase shares, a stock substitution with an In-The-Money call was chosen.  The maximum risk when buying an option is the premium paid which was less than $500 in this case.

The payoff is greater with the option plus the bonus of completely limited risk.  The position is like being long INTC from $20 with over six months to gain more upside.

Another Tech play was identified mid November in Texas Instruments.  The original signal on a rally above $32 was reconfirmed with the new breakout just last week.  Look at the OVI strength since the beginning of the New Year.

Option Action – TXN April $28 Call @ $4.85

The option play instead of stock shares had the staying power to hold value for the long term upward trend play.  The current gain is more than 20% with three more months for rally returns.

Other Plays On The Radar

With the Tech sector now in play, two other setups warrant attention.  A rally rush above $58 in QCOM could trigger a bullish buy.  The OVI has been positive long before a first bull flag breakout above $56.

The Tech giant Amazon is forming a price base.  A rally push above $200 a share combined with the positive OVI are what the watch for in the future.

OVI revisited

When the line is positive, we’d be more inclined to focus on bullish chart patterns; and when it’s negative we’d focus the more bearish chart patterns.

We only use the OVI in combination with a chart pattern such as a consolidation or flag.  We do not use it in isolation.

The OVI is an oscillator derived from options volume, open interest and implied volatility.  In many cases, the OVI will actually precede a breakout, and this is the key to our strategy.

What do these bullish tech stock breakouts combined with a positive OVI mean?

It means that the most informed investors are boarding this Tech train…Time to Take a Ride!!

Remember, Plan your Trade and Trade your Plan!

Guy Cohen

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