Reading Price Action: State of Ultra Large Cap

Here’s how the Ultra Large Cap [Top 200 stocks by market cap] stocks are doing in 2022. It gives you deep insight into how the market is positioning for the future

1. Interest rates are set to rise as the US Fed fights inflation. The new strategy: Sell Growth Buy Value
2. Cathie Wood ETF ARKK, which is considered a proxy for Tech Growth stocks is down 37% over the last 2.5 months.
3. The Value has made a grand comeback. Berkshire Hathaway broke out in Dec and is now up 8% in a month.
4. Most of the Large Cap Tech stocks be it Apple, Microsoft, Google, Amazon, Facebook are trading sideways now. 
5. But all the stocks have not been lucky. See Adobe and Salesforce CRM. Should one buy the dips? I will say No.
6. When the market does not like Tech stocks, it becomes hard for stocks with better price action to sustain. Example: Cisco and Oracle
7. Never buy a dip when the stock opens a Gap down. Example: Disney
8. When a stock makes a Gap up move, then follow-through buying does happen. Example: Coca-Cola. Even Pepsi made a breakout move of 10%
9. Lots of large-cap stocks like Intel, Visa, and Walmart found support in early December but have no upside triggers.
10. Scanning a new high help. P&G made one in Nov and retested early Dec. No wonder the stock is up 11%
11. Apart from Value- two other themes the market loves 1. Banks because rates are going higher; and 2. Oil [Brent Crude trading above $80]
12. Large Cap Financials were doing well but post-earnings XLF is down 1.34% today. The Banking stock leading the XLF down is JP Morgan Chase. Wells Fargo is an exception. The market likes the earnings and the stock is having a terrific 2022.
13. Exxon Mobil XOM started the year 2022 with a large candle, thanks to surging oil prices.
14. NVidia and AMD look exhausted on the chart but that’s not the case with Taiwan Semiconductor TSM
15. Qualcomm QCOM made a Gap up move in Nov and surprisingly, it has sustained its gains. Semiconductor Equipment play AMAT also sustained the breakout and making a move.
16. Toyota Motor Corp TMC Breakout +5% – Toyota reported strong sales number and became the number 1 auto company in America
17. Never argue with Price Action. If the trend is down, then the stocks can surprise you on the downside. Nike has broken 200 dma on the downside 🙁
18. I get very worried when stocks break 200 dma. See Paypal for example.
19. Old School traditional stocks with real earnings making a comeback. Caterpillar looks good.
20. Just see how the money has chased stock like British American Tobacco
21. Which stock should one buy? – CME – the largest derivative exchange in the US. One of CME’s biggest contracts is interest rate futures. Now considering so much debate happening around how much interest rates can rise in 2022, this is bullish news for CME. Also, the price action of CME looks bullish
22. When a stock makes a huge Gap up move on fundamental development, then it qualifies as a BUY. Las Vegas Sands LVS has done just that. Even MLCO looks exciting.
23. Macau Gaming Bill seems to be driving the Gambling stocks higher. 
24. The fear of failure is outright unproductive. Keep fighting and you will do just fine.

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

Trade Sheet: