UK Tech Stock Plays: ARM, Imagination, Ricardo

Although it is clear that UK technology companies can hold their own on the world stage, there is at least a significant problem in terms of ratings and at least appreciation amongst investors. The problem is that while this state of affairs looks as though it is a cultural problem as much as anything else, there is the chicken and egg issue of whether those in this area – from start-ups to FTSE 100 companies – really get the backing they deserve. But the good news is that for those who are fans of this space, there are good names, both old and new, which remain worth chasing.

It would be difficult to have any discussion on the merits or otherwise of this sector without looking at the position of one of the old and most distinguished players: chip designer ARM Holdings (ARM). Ironically, this is one of the few situations where private investors on the bulletin boards called the stock and the concept higher at the time of the Dotcom Bubble, and have more than proved that they did their homework correctly. Indeed, the group has become a leading player in the mobile technology space, more than proving that the “barmy army” of 15 years ago were not quite as barmy as some believed at the time. In fact, it could be argued that with the explosion in smartphones this particular section of the community was frighteningly accurate. A glance at the daily chart of ARM Holdings shows how there has been progress within a rising trend channel from August last year. The key points since then have been the October bear trap rebound from below the 800p level, followed by the unfilled gap to the upside later that month. This has proved to be a decent catalyst for an extended rally until last month’s shakeout, which has also proved to be a bear trap – this time from below 1,050p. The suggestion now is that while there is no end of day close back below the latest April swing low at 1,118p, we should be biased to the upside. The implied target over the next 2-4 weeks is as high as the 2014 resistance line projection at 1,260p.

Something over and above the less than flattering ratings that UK tech stocks have is the volatility of the share price, a characteristic that most companies in this zone share. This point is underlined by the recent history of Imagination Technologies (IMG). Here we have seen a gap through the 200 day moving average in December and a sharp unfilled gap to the downside for March. The position now is that while the March price action still appears threatening, we have a possible initial rebound off the floor of a rising August price channel at 200p. This provides technical traders with the opportunity to chase a 50 day moving average target at 237p over the next month, at least while there is no sustained price action back below the 200p zone.

We finish off the trio of tech plays today with Ricardo (RCDO), a situation which is arguably a case of saving the strongest until last. This is said in the aftermath of the unfilled gap to the upside through the 200 day moving average in January, and subsequent golden cross buy signal between the 50 day and 200 day moving averages the following month. The latest coup for the bulls is the gap to the upside through the 798p initial 2015 resistance. This leaves us with a setup which suggests that while there is no end of day close back below the 798p level, the top of a rising trend channel from September at 950p could be the target over the next 1-2 months.