Parabolic or Sustainable Trends
Investors need to understand the six mega-cap technology stocks that continue to hold sway over the S&P 500 Index (SPX), Nasdaq Composite Index (COMPQ), Nasdaq 100 Index (NDX), and numerous Technology, Growth, and large-cap indexes.
The six companies (i.e., AAPL (2.033 trillion/5.76% of SPX Mkt cap), MSFT (1.763T/5.33%), AMZN (1.544T/3.90%), GOOGL (1.375T/1.87%), GOOG (1.384T/1.82%), FB (756.827B/1.90%) and TSLA (646.637B/1.32%) accounts for 22% of the SPX Index by market capitalization and have a total 9.50 trillion market capitalization together. Collectively, the six companies have a market cap larger than many of the S&P sectors such as Financials, Healthcare, and Industrials.
While the overwhelming size and weight can help key market indexes to trend higher when these mega-cap stocks are recording new highs, they can hurt market indexes when these mega-cap stocks decline sharply. Although many understand the influence and the impact that these mega-cap technology names can have on market returns, it is also important to recognize how each stock can influence the marketplace individually.
Interestingly, the current correction is not uniform. It shows wide discrepancies in performances between the six mega-cap names. On onside are the weaker names such as AAPL, AMZN, and TSLA, which have corrected sharply over the past few weeks. It is in sharp contrast to the performances of MSFT, FB, and GOOG/GOOG.
Enclosed below is the analysis of the six influential mega-cap stocks. We recommend investors monitor pivotal technical levels as the performances in the days and weeks ahead will help decide the near-to-medium term trends of stock market indexes and possibly US stocks in general.
AAPL suffered two sharp corrections of -25.28% and 19.78%, respectively, within the past year. Does this replicate the larger 31.85-38.97% of previous setbacks? Support converges near 97.5-114 or the 38.2% retracement from May 2016-Jan 2021 rally, 38.2% retracement from 3/23/20-1/25/21 rally, 200-day ma, and the bottom of the 2016 parabolic uptrend. The key initial resistance is 129-131 (3/2/21 high and 50-day ma), and above this to 137.5-144.87 (Sep/Dec 2020 and Jan/Feb 2021 highs).
MSFT is not overly extended based on the distance from the 50-day and 200-day ma (230 and 213). Except for the Feb-Mar 2020 setback of -30.32% correction, MSFT has been confined to a corrective range from 9% to 19%. The current pullback is 8.67%, putting it at the lower end of the prior corrections. However, violation of the 200-day ma (213) warns of a deeper correction to 187-202 (38.2% retracements from 12/26/19-2/16/21 rally and 3/23/20-2/16/21 rallies, the bottom of the 2020 triangle, and the Jun 2020 breakout). The key initial resistance remains at 237.5-240 (2/22/21 gap down), and above this to 244.5-245.56 (Feb 2020 all-time highs).
The six-month AMZN correction of -671.25 points or -18.90% from 3,552.25 (9/2/20) to 2,881 (3/4/21) has increased concerns for a top. With one exception (i.e., 2009 financial crisis correction), the previous corrections have typically hovered around -30% to 36%. The current correction of -18.90% is relatively tame, at least compared to past corrections. Also, the parabolic trend from the Nov 2008 bottom (34.68) does not appear to be too steep to warrant that a speculative bubble has developed. Nonetheless, the key initial support is 2,871-2,881 (9/21/20 and 3/5/21 lows). Violation warns of a deeper correction to secondary support at 2,816 (38.2% retracement from Mar-Sep 2020 rally). Below this to 2,589 (50% retracement) and then to 2,362 (61.8% retracement). The prior early-2020 breakout at 2,050.50-2,186 remains pivotal intermediate-term support. The key initial resistance is 3,098.5-3,207.5 (200-day and 50-day ma), and above this to 3,344-3,434 (7/13/20 and 2/3/21 highs), and then to 3,496-3,552.25 (Sep/Oct 2020 all-time highs).
GOOGL has been relatively strong as compared to many of the larger-cap Technology peers. The recent pullback has been -7.22% over the past few weeks. Except for the 51.73% bear decline from Feb-Mar 2020, the typical corrections for GOOGL have hovered around 9% to 24%. Also, note GOOGL is currently trading comfortably above its key initial support at 1,928-2,013.5 (2/3/21 gap up, top of the 2019 uptrend channel, and the 50-day ma). Violation here warns of a correction to 1,844-1,869 (Mar 2020 uptrend and the mid-Jan 2021 breakout), and below this to 1,711 (38.2% retracement), and then 1,657 (200-day ma). The key initial resistance is 2,114-2,145.14 (Feb/Mar 2021 all-time highs).
FB does not appear to be technically extended or trading at overbought levels. The two sharp corrections over the past two years (i.e., 43.73% and 38.85%) may have alleviated any overbought conditions. The 50-day ma (265.53) is declining toward the 200-day ma (261.06), suggesting an impending major battle. An ascending triangle breakout above 219-224 (May 2020) also hints of further upside, intermediate-to-longer term. The key initial support is 240-245 (Sep 2020 and Jan 2021 lows and the 38.2% retracement from 3/18/20-8/26/20 rally). Violation here warns of a retest of 219-224 (breakout and 50% retracement). The key initial resistance is 285-292 (Aug 2020 downtrend and Dec 2020/Jan 2021 highs), and then 304.67 (8/26/20 all-time high).
TSLA gained 865 points or 2,443.50% from the 6/3/19 low (35.40) to the recent all-time high of 900.40 (1/25/21). An overbought condition developed into this rally, prompting another correction. The current Jan-Mar 2021 correction of 40.8% may be severe. However, it is in line with prior TSLA setbacks of -30.09% to 63.83%. The key initial support is 468-502.5, coinciding with the 50% retracement from 6/3/19-1/25/21 rally, 50% retracement from 3/18/20-1/25/21 rally, 11/20/20 breakout, 2019 parabolic uptrend, and the 200-day ma. The key initial resistance is 695-775 (12/18/20 high and 50-day ma), and above this to 884.5-900.40 (Jan 2021 all-time highs).