The only tech giant worth buying
While bellwethers like Apple and Amazon look poised to underperform, one stock is worthy of consideration.
By Tom Aspray, MoneyShow.com
The relative performance, or RS analysis, of the tech-heavy PowerShares QQQ Trust (QQQ) broke out last July, and while the broader markets were dropping in August and September, technology stocks held up much better.
This outperformance of QQQ versus the S&P, however, ended in early November, and QQQ has been lagging since. Sentiment on many of the tech giants has also been quite negative, as both Apple (AAPL) and Amazon.com (AMZN) have disappointed investors.
As the stock market struggles to move higher going into the end of the year, the weekly technical outlook indicates that only one of these four market bellwethers looks attractive.
Google (GOOG) has closed above year-long resistance for the past two weeks, line a. The all-time highs are at $642.96 with trend line resistance, line a, in the $660 area and the weekly Starc+ band at $672.
- The weekly RS analysis has improved sharply over the past few months, as it has moved well above its downtrend, line c. GOOG has been clearly outperforming the S&P 500 since the October lows
- The weekly on-balance volume (OBV) is now slightly above its downtrend, line d, and its weighted moving average (WMA). It is still lagging the price action
- The daily OBV analysis (not shown) does look much stronger and continues to favor higher prices
- There is short-term support at $618 with further support in the $612 area. The daily Starc- band is at $600.
Microsoft (MSFT) has traded in a fairly tight range since early August, and the weekly charts show a triangle, or flag formation, lines e and f. There is weekly resistance now at $27.50 to $28.14.
- The flag formation has upside targets in the $34 to $35 area
- The break of the downtrend in the RS line was a positive sign
- There is RS resistance now at line h, and a move above this level will confirm that MSFT will be a leader for 2012
- The weekly OBV is still in a downtrend, but has recently moved above its weighted moving average; volume was strong on Friday, but the daily OBV is not impressive.
The weekly Apple chart formed a doji two weeks ago (a sign of indecision) and then closed last week below the prior week’s low. (This formation was first described by John Person in his book Candlestick and Pivot Point Trading Triggers.)
- The weekly chart shows converging support, lines a and b, in the $353 to $354 area, which also corresponds to the August and October lows
- There is major support at $310 and the June lows
- The weekly RS analysis peaked in September and has since formed lower highs; it is still well above its long-term uptrend, line c
- The weekly OBV did not confirm the most recent highs, line d, and is not far above the 18-month lows
- The daily OBV (not shown) formed a negative divergence at the island top in October; this chart formation typically will take some time before it can be overcome.
Amazon has also been quite weak over the past two months, dropping from a high of $246.71 to last week’s close at $181.26, a decline of 26.5%. The stock now has converging chart support in the $164 to $166 area.
- The major 50% Fibonacci support level at $177 was broken last week and the 61.8% support is at $160
- The weekly RS analysis confirmed the recent highs but is not on the verge of breaking its long-term uptrend, line g
- The weekly OBV peaked in May and has since failed to make new highs with prices, line h. The break of its uptrend, line i, and the prior lows is a negative sign
- The daily OBV analysis is negative and shows no signs yet of bottoming.
What It Means: The technical action of both Apple and Amazon does not suggest they will be market leaders as we enter 2012. The deterioration in the weekly RS analysis for AMZN suggests it should be watched closely.
Google and Microsoft look much better, but I would only look to buy GOOG on a setback.
How to Profit: From my previous recommendation, buyers should be long Microsoft at $25.78 with a stop at $23.42 (risk of approx. 9.1%). I would still recommend buying at this level, as MSFT yields 3.1%. On a move above $28.50, I would raise the stop to $24.76.
MORE ON MSN MONEY
DATA PROVIDERS
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
Japanese stock price data provided by Nomura Research Institute Ltd.; quotes delayed 20 minutes. Canadian fund data provided by CANNEX Financial Exchanges Ltd.
STOCK SCOUTER
StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.
127 | 269 | 463 | 587 | 658 | 616 | 645 | 431 | 263 | 138 |
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
LATEST POSTS
All hail the bull market, which ended the week with a big rally. But it also is starting to look a little like 1987, which suffered an epic blow-out.
FIDELITY VIEWPOINTS
- How to sell covered calls - Fidelity Investments
- Savvy year-end tax moves to consider now - Fidelity Investments
- Seven ways to prepare for tax changes
- Five reasons an annual review is crucial - Fidelity Investments
- Take a look at mid caps now - Fidelity Investments
- State of the sector: Health care - Fidelity Investments
VIDEO ON MSN MONEY
ABOUT
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.