2 Tech Stocks That Could Take Off

VMware (VWM) and Seagate Technology (STX) stocks are testing historically bullish trendlines

May 22, 2017 at 12:46 PM
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Despite last week's broad-market pullback, tech stocks have been on a tear lately, drawing comparisons to the late-1990s dot-com gains. In fact, even as funds poured out of U.S. equities last week, global tech stocks generated their 11th straight week of inflows, according to data from BofA-Merrill Lynch. However, there are still some buying opportunities in the tech sector, with two stocks popping out at us this week: virtualization technology maker VMware, Inc. (NYSE:VMW) and data storage stock Seagate Technology PLC (NASDAQ:STX).

VMW Stock Could Resume Quest for New Highs

VMW stock caught our eye after barreling through the $86-$87 region -- a 61.8% Fibonacci retracement of its drop from mid-2014 to early 2016, and roughly two times the equity's February 2016 lows. Further, VMW toppled the round-number $90 level, which halted rally attempts in 2015, and is home to the stock's 80-day moving average. After its last six tests of this trendline, VMware stock has gone on to average a one-month gain of 9.54%, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. Further, VMware shares were higher one month after a test 83% of the time. At last check, VMW was up 2.3% at $94.63 -- within 2 points of last week's two-year high.

VMware VMW stock chart

Despite VMW's year-over-year gain of more than 58%, pessimism prevails. Short interest represents 28.5% of the stock's total available float, and would take 18 sessions to unwind, at the stock's average daily trading volume. That's plenty of sideline cash to fuel VMware stock to even higher highs on the charts. Further, not even half the analysts covering VMW deem it worthy of a "buy" or better opinion, leaving the door wide open for potential upgrades to lure more buyers to the table.

What's more, VMware, Inc. is scheduled to report earnings on Thursday, June 1. The stock has moved higher the session after its last four earnings reports, gaining 13.7% in one day back in April 2016. Over the past eight quarters, VMW stock has moved an average of 8.6% in either direction the day after reporting, but this time around, the options market is pricing in a slimmer single-session move of 8%.

Earnings Dip Could Signal Buying Opportunity for STX Stock

Seagate Technology stock took a hit after reporting earnings on April 26, gapping lower and subsequently breaching its lower Bollinger Band -- a "buy" signal over the past year. However, the shares found support in the form of their 160-day moving average, which has ascended into the $41-$42 neighborhood. The last two times STX shares tested this trendline, they were in the black both times one month later, averaging a gain of 3.74%, according to data from White. Prior to its pullback, Seagate stock was flirting with annual highs just below $51. Now, STX is trading at $42.29 -- a 0.5% drop from Friday.

Seagate technology stock chart stx

As with VMW, there's plenty of skepticism levied against STX. Two-thirds of covering analysts consider the shares a "hold" or worse, and the stock's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 1.22 is higher than 93% of all other readings from the past year. In other words, options buyers have placed bearish bets over bullish at a faster-than-usual clip during the past two weeks. An unwinding of skepticism could be a boon for Seagate stock.

Now is an opportune time to snatch STX options, though. The stock's Schaeffer's Volatility Index (SVI) of 26% is in just the fourth percentile of its annual range, pointing to attractively priced near-term options, from a historical volatility standpoint. Further, STX's Schaeffer's Volatility Scorecard (SVS) sits at a lofty 100, indicating Seagate shares have made bigger moves on the charts during the past year, compared to what the options market had priced in.

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