The outlook on data storage companies is becoming rosy and recent developments are screaming bullish.  Data storage companies are represented here by the AMEX Disk Drive Index (DDX). Here are some highlights:

• The index closed above the 125 mark last Thursday. This mark has been a major area of resistance that was tested in February and March of this year. The index has not been closed above this level since April of 2004
• The MACD line  crossed over about 2.5 weeks ago caught our eye as well as the nice bounce off of the 50-day line at the same time.
• It appears that the 25-day line (blue) is forming as an area of support for index.
• We are bullish from here and as the stochastic line also closed above 80 and remains above just as it was in May of this year.

I would ride this wave up as far as possible using the 25-day moving average as a place to sell from based on the bounce we saw 3 days ago. That means we need to watch for a CLOSE below the line. Much of the recent move can be attributed to SanDisk, a powerhouse stock that has been surging for the last 3 months. Another strong component is Adaptec, up 40% in the last 3 months.

We expect sales of storage devices to grow much in the next 3-5 years, made possible by consumer-level purchasing, e-mail, and the Internet. Sales of disk and flash drives are strongly related to personal computer sales. It's common for these drives to be standard with many popular desktops and laptops.  The volume trends in PC's should also be favorable in the next 3-5 years.

Here's a look at 2 notable stocks in the sector, SNDK(Sandisk) and ADPT (Adaptec)

Sandisk Corp.

Adaptec

Price Headley is the founder and chief analyst of BigTrends.com.