Ultra Large Cap Trades in 1H CY2021: Hits and misses

Here’s what you will find in this blog: Price action concepts, opportunities and Price Action stories in Ultra Large Cap (stocks that have market cap > $100 billion)

• Was there a long trade in Apple in CY2021?
• How Bank of America made a 30% move in six weeks
• Pfizer ~ Deep Value Trade
• Microsoft ~ The Unstoppable Bullish train
• Why this large cap is Buy on dips candidate

Here’s the Price Action Story of Apple

Apple stock has rallied from 119 to 134 i.e. 12% in the last three weeks. Was the trade obvious? Let us look at the price action and make sense of the latest move.

Apple stock peaked on Sep 01 2020 at the price of 137, the day after the stock split happened. The stock pulled back near 104 by the end of September and then staged a recovery. It took multiple support at 100 dma in Nov before rallying to 144 by the end of Jan 2021. The trade: Buy at 100 dma b/w 110-112 during 1H November got very well rewarded.

The chaos started again around the end of Jan 2021 and the Apple stock started pulling back from the levels of 144. The hope was that the stock would take support at 100 dma. This is where things went wrong with Apple as the stock failed to take support. [Why? – The drama around rising yield and how it’s bad for technology stocks?]

Science of Stock Price Action: When a stock fails to take support at 100 dma, then it slips to the next moving average, which means 200 dma. 

The 200 dma stood near 116-117. BUT APPLE stock never went down to 200 dma 🙁

Apple stock did pull back to 118 by the end of Feb and then traded sideways there. There was a hope that one day the bottoming will happen with convergence at 200 dma but Apple stock never completed that pattern. It took off again at end of March this time with a price of around 119 and the stock is now at 134.  This has not been a clean textbook move.

Bank of America Trade

The fundamental noise that created chaos in the market early this year: Rise in Treasury yields and its impact on growth and tech stocks. The only winner of this argument was Large-cap banks as they benefit due to the increase in the spread between what they borrow (fed rates near zero) and what they lend (long-term rates). In other words, there was a great fundamental reason to be bullish on banks.

Let us read the price action of Bank of America

Bank of America BAC stock started its bullish journey post-Biden victory in Nov and on the news that the vaccine works. The stock rallied from $26 to $30 by the end of Dec, and then in Jan 2021, it saw a huge gap up, which the stock price filled by the end of Jan. The moving average of 50 dma also converged giving a perfect buy signal.

Science of Stock Price Action: When a stock gaps up, then it results in a buying opportunity when it comes down to fill the Gap. The buying opportunity is more powerful if it converges with some other support area like moving average or a horizontal support line.

Buy Bank of America at the price of $30 was a no-brainer trade around the end of Jan 2021.

Bank of America BAC stock did not disappoint and it rallied 30% with great speed in just over six weeks. The trade is not done yet and “buy the dip crowd” seems to be waiting for another dip.

Pfizer ~ Deep Value trade

Pfizer was a down and out stock despite bullish vaccine news. Hence, when it pulled back to 200 dma on Feb 09, I covered the stock as a value play.

The argument I made back then, the stock should hold 200 dma and one should buy near 34-35 as the stock is closer to horizontal support level of 33. What the stock did: It went down to take support at 33.5 by early March an now the the stock has rallied $5 from that levels.

Microsoft ~ The Unstoppable Bullish train

Microsoft stock has been on unprecedented bull run since many years and every time it makes a new high, it feels like now it will stop but it never does. Microsoft stock made a new high around end Jan above 227 and the rallied to 245 only to sell off on rising yield fear back to 227 to retest the prev high. It was a buying opportunity, which got ignored on premise of limited upside.

Here’s what Microsoft stock has done after taking support at 227, it rallied all the way to 260+ in less than six weeks i.e. rally of 14%.

Cisco is now a Buy on dip candidate

Cisco is considered to be a big beneficiary of both Return to Office spending and Technology spending. The hope is that the companies will spend big on data networks in the offices this fall. The stock has received numerous upgrades over the last one month with price target ranging from $58 to $63. Here’s how the price action looks

As you can see in the chart above, Cisco stock made a large candle breakout above 50 on the analyst upgrades and since three weeks has been consolidating sideways. The stock can continue to consolidate and hence one should look to buy on declines near 51.5 with a price target of 58+. It’s just a 10% trading move opportunity but it might position you for any breakout above 58 quite early. It’s not a juicy opportunity.

I have not covered large-cap stocks with the same intensity as I cover small-cap momentum, but now that’s going to change. I will pay equal attention to all categories of stocks and here’s the first blog in that regard. Ultra Large cap stocks don’t rally 50-100% in short period of time but they do rally from 15 to 25% in 4-6 weeks time. Plus they are not extremely volatile. Hence, if that’s the nature of investment/trade, you are looking at, this is the section to watch out for.

Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers