Contrarian Bulls Should Keep Watch of These 4 Tech Stocks

Subscribers to Chart of the Week received this commentary on Sunday, April 16.

As Wall Street enters another earnings season and investors digest the recent slew of inflation data, it’s worth looking at a few names that historically, may be solid bets for bulls to move in on during this time of volatility. Specifically, there is a handful of software stocks that have approached a bullish trendline. Below we will take a closer look at several flashing bull signals that could indicate more gains are on the horizon for software and tech names -- especially since the broader market is fresh off Thursday’s Big-Tech surge.

Some of our favorite data that we pull from consistently covers a stock’s bullish pullback to a specific, and widely followed moving average. Schaeffer’s Senior Quantitative Analyst Rocky White looks at several things when pulling this data: how many closes above the moving average the stock has made; if its within 2% of the moving average; and if it’s above the trendline 80% of the time over the past two months and during eight of the last 10 trading days. It also encompasses 500-600 of the most liquid stocks over the past three years of trading. The list covers the 40-, 80-, 160-, 200-, 260-, and 320-day moving averages, but for today, we are looking at the 80-day, which is the site of a sector theme that seems to be playing out.

As seen in the chart above, four of the five top listed stocks with notable historic returns are in the "Software & Computer Services" sector. In other words, Snap Inc (NYSE:SNAP), Atlassian Corp (NASDAQ:TEAM), Okta Inc (NASDAQ:OKTA), and Wix.COM Ltd (NASDAQ:WIX) are all within one standard deviation of the 80-day moving average, with all four boasting impressive market cap values. The year-over-year returns are less than desirable, though, with SNAP sporting a 67% deficit. If past is precedent, however, now may be the perfect time to enter a position on these struggling tech giants.

Digging deeper, SNAP, TEAM, OKTA, and WIX saw four, four, three, and five similar pullbacks, respectively, to the 80-day during the past three years, with corresponding returns of 10.8%, 8.5%, 7.3%, and 7.2%, one month later. In fact, Okta and Wix stocks saw positive returns after all run-ins with the moving average, making these software leaders the safest bets on our list. Don’t count out Snap and Atlassian stocks, though, as the equities enjoyed a positive return 75% and 67% of the time, respectively.

While market volatility has taken Wall Street on quite the journey over the last week, Big Tech sent the Dow Jones Industrial Average (DJI) and tech-laden Nasdaq Composite Index (IXIC) to triple-digit wins Thursday. The latter index also snapped a three-day losing streak. As of this writing the broader indexes are struggling, however, but this may be exactly the entry point contrarian software and tech traders are waiting for.