JPMorgan (JPM) has broken out to new highs this week, but sits near a perilous technical level, writ...
The Only Tech Giant Worth Buying
12/19/2011 11:00 am EST
The relative performance, or RS analysis, of the tech-heavy PowerShares QQQ Trust (QQQ) broke out last July, and while stocks were dropping in August and September, the technology stocks held up much better.
This outperformance of QQQ versus the S&P 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.
Chart Analysis: Google Inc. (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
- The flag formation has upside targets in the $34-$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 chart of Apple (AAPL) Formed a doji two weeks ago (a sign of indecision) and then closed below the prior week’s low last week. This formation was first described by John Person in his book Candlestick and Pivot Point Trading Triggers.
- Weekly chart shows converging support, lines a and b, in the $353-$354 area, which also corresponds to the August and October lows
- Major support is 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
- 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.com (AMZN) 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-$166 area.
- The major 50% Fibonacci support level at $177 was broken last week and the 61.8% support is at $160
- 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
- Daily OBV analysis is negative and shows no signs yet of bottoming
What It Means: The technical action of both Apple (AAPL) and Amazon.com (AMZN) 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.
How to Profit: From my previous recommendation, buyers should be long Microsoft (MSFT) 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, raise the stop to $24.76.
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