With some signs of sector rotation as the new quarter gets under way -- and as the market is correcting -- some analysts are watching the tech trade closely. Of course, Apple (AAPL) continues to lead the market, although in the strictest sense it's arguable a consumer discretionary company, rather than a tech name.
However, as I noted in a column earlier this week, stocks with good earnings and sales growth, combined with solid moving average support, are worth monitoring in a weak market. Some of the techs that continue to show solid chart action are in the data-management and network-optimization subsector.
Rackspace Hosting (RAX), a mid-cap that specializes in hosting services for small businesses, hasn't gotten much love from the financial media, despite a gain of nearly 32% so far this year. The chart has shown some bullish indicators in recent months -- for instance, it cleared a nine-month base in February. This particular area of price consolidation undercut the low of the previous base. As frequently happens with fundamentally sound companies, investors swooped in to buy shares at a bargain, putting in place the stock's 2012 run-up.
At the moment, Rackspace is holding at its 20-day average, after undergoing some selling this week, along with the broader market. A pullback to its 50-day line would be extremely constructive, as that is often an area where institutional investors step in to support an existing position.
The company will likely report its next quarter sometime around May 5. As always, information in that report could be a catalyst for a price move in one direction or another. As it stands, a buy point could occur above the prior high of $59.43, reached on March 27. However, depending on how any consolidation plays out, that could change.
A company that's about the same size as Rackspace, in terms of market capitalization, is Equinix (EQIX). This company a range of network management services for business users, and it's another example of a stock that has sported an extraordinarily strong 2012 rally. Shares are up 55% so far for the year. As of Thursday afternoon, Equinix was holding at its 10-day line after retreating from Tuesday's all-time high of $161.56.
In addition to the pullback in the general market, the stock was downgraded by Capstone to Hold from Buy. Frequently, such analysts actions have little medium- or long-term effect on a stock. In this case, the stock's support at its short-term price line is an indication that investors were not terribly spooked by the change in analyst outlook.
Equinix was last buyable in mid-March, when it bounced off that short-term moving average. Since early January, the stock has held well above its 50-day line. Of course, a breather has to be in the cards for it at some point -- and, with the major indices under selling pressure, it would not be surprising to see that happen in the not-so-distant future.
Equinix's last proper basing area occurred in tandem with the market pullback last summer. The vast majority of price leaders tend to consolidate along with the market, so its next pullback could eventually lead to further price progress.
The company has confirmed that its first-quarter report is scheduled for April 25. Analysts are eyeing income of $0.50 a share on revenue of $445.17 million. That would mark a year-over-year increase on the top line, but a decrease on the bottom line.
Equinix missed analysts' earnings views in the past two quarters. Of course, as often happens, the company's outlook could potentially have a greater effect on the price than results from a quarter that's already over.
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