Tech Stocks: A bullish chart pattern is forming and could be a signal to buy

Technology Sector

From Keris Lahiff: Tech is attempting to rebound this week.

The XLK technology ETF and the QQQ ETF, which tracks the Nasdaq 100, have surged nearly 3 percent since Monday, attempting to recoup some of the heavy losses sustained over the past three months.

Bill Baruch, president of Blue Line Futures, sees a bullish chart pattern forming that could signal further upside.

“I’m looking at an inverted head-and-shoulders pattern, which can be very powerful to the upside,” Baruch said Wednesday of the QQQ.

An inverted head-and-shoulders pattern marks a low followed by a recovery, a lower low, another recovery, and finally a higher low and recovery. The move is typically a bullish signal that suggests a downward trend is petering out and reversing to the upside.

“If you go back to October, we had what I look at as a left shoulder being put in and then we had that Thanksgiving low where the Nasdaq was the only index making that severe low of the major three and then it was actually the most constructive here making a right shoulder,” Baruch said on CNBC’s “Trading Nation.”

“At $170, that could be the breakout. You have the 200-day moving average there, and if we get above there, we’re looking for a really strong rally right around Christmas and after the Fed meeting next week,” he added.

The QQQ is less than 3 percent from $170. It last closed above that level in early December.

If you are going to bet on tech, bet on value stocks over growth, says Michael Bapis, managing director of Vios Advisors at Rockefeller Capital Management.

“We do believe there is a rotation within this sector going from high-growth names, from super high-flying names, into tech with earnings,” Bapis said on “Trading Nation” on Wednesday. “MicrosoftAppleIntel — these companies are trading at low multiples, they are generating a high amount of cash, they’re growing their earnings and they pay a little dividend.”

Microsoft and Apple have a dividend yield of 1.7 percent, while Intel yields 2.5 percent. All three ended their last quarter with double-digit income growth.

“We love the sector. It is going to be a stock pickers’ sector,” added Bapis. “Everything is not going to go up, but we definitely believe you have to own it going forward.”

Disclosure: Michael Bapis personally owns AAPL, MSFT and INTC.

The Technology Select Sector SPDR ETF (XLK) was trading at $66.25 per share on Thursday morning, up $0.17 (+0.26%). Year-to-date, XLK has gained 3.92%, versus a 0.05% rise in the benchmark S&P 500 index during the same period.

XLK currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 68 ETFs in the Technology Equities ETFs category.

This article is brought to you courtesy of CNBC.