Last week I told you that I was steadfastly bullish on this market.
Not cautiously bullish, like most pundits who prefer to hedge their bets. Outright bullish.
Now, the market has taken a step back since then, based largely on the trade skirmishes (not yet trade wars) popping up around the globe. Markets typically don't respond well to tariff saber-rattling, and the current rhetoric is no exception.
In fact, I said in my bullish piece that the S&P 500 Index (^GSPC) could have trouble with the 2,800 level. That's exactly what's been happening, as the SPX topped out last week at 2,791.
But this has not changed my outlook. Nothing has changed in terms of the technicals, volatility, trading volume, the risk-on trade, and interest rates. All are in place to support another bullish run.
With that backdrop, and given the outperformance by technology stocks, today I want to give you two tech names that my "Best in Breed" (BIB) methodology suggests will continue to outperform.
That's what BIB is all about - finding the strongest stocks in the strongest sectors. Let's take a look...
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This Is One Serious Uptrend
First up is an old favorite of mine - Adobe Systems Inc. (Nasdaq: ADBE), which has been far outpacing the Nasdaq throughout 2018.
Now, there are uptrends, and then there are uptrends. Adobe is in a serious uptrend. In just 18 months, Adobe has spiked 160% in a rally guided higher by the tandem support of its 20-day and 50-day moving averages.
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Last week, Adobe kept the rally intact by announcing another quarter of solid earnings, beating on earnings, revenue, and sales guidance. The stock pulled back initially on the report, but found its legs at the 20-day moving average to keep the momentum going.
With the tandem trendline support in play and earnings out of the way, there's every reason to believe the momentum will continue. After all, the trend is your friend, right?
I am also encouraged by the fact that short interest on Adobe increased a whopping 22% last reporting period, one of the largest increases among the tech stocks I track. Even with this increase, Adobe's short-interest ratio is not at a level that is likely to bring on a short-squeeze situation.
However, the fact that the shorts were rejuvenated (for whatever reason) tells me there's some skepticism out there that could translate into added buying pressure.
If you want to play Adobe's upside, the Aug. 17, 2018, $250 call has plenty of time to let the uptrend bring you a solid profit.
This Stock Offers the Best of Both Worlds
My second stock, though about a quarter of Adobe's market cap, is just as impressive in terms of outperforming the overall tech sector. It's none other than Sirius XM Holdings Inc. (Nasdaq: SIRI), which hit a 12-year high on Monday and is up nearly 40% for the year.
Sirius' relative strength chart versus the COMP looks a lot like Adobe's.
Due to the fact that the stock has ascended so quickly, trendline support is not currently in play. That said, the 20-day moving average is ready to lend a hand at the $7.20 level. What's more, the 50-day moving average is in a steep incline, which is a clear sign of strength.
The short interest situation with Sirius is interesting. The number of shorted shares has been declining throughout 2018, but the short-interest ratio remains high at around 12. That indicates that the shorts are feeling the pressure and covering their positions, adding buying pressure in a classic short squeeze.
Yet, there's plenty of short-covering fuel left in the tank to keep Sirius' rally intact. This is the best of both worlds - short-covering in progress and plenty of short positions remaining. That should keep Sirius pointed higher.
I'm recommending a shorter-term option for Sirius - the July 20, 2018, $7 call. That's because earnings are due on July 26, and the stock has had some difficulty after recent earnings reports. However, the shares tend to run up into earnings, so the July 20 expiration fits perfectly.
With my BIB model, you can be sure the outperformers - and the profits - will keep on coming. Stay tuned.
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About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.