How the Mega-Caps Shape Up

By Cory Mitchell | March 07, 2013 AAA

The Dow Jones Industrial Average set a record high on March 5, closing out the day at 14,253.77 and hitting 14,286 intra-day. The S&P 500 hasn’t made a record high yet, but is in the vicinity, closing out March 5 at 1539.79; the record high for the index is 1576.09 set in 2007. The mega-cap stocks (with average volume over 1M shares/day) aren’t all singing the same tune though. Even with the index hitting new highs, investors need to be very selective, as some of the most popular and well-known stocks are bucking the trend, while others surge.

Apple (Nasdaq:AAPL) is the most extreme case of a popular stock bucking the trend. The iPad maker has been in decline since September and continues to look quite weak. The downward trendline from the September high at $705.07 down along the recent swing highs shows there is little to be bullish about unless the stock climbs above $475. This would break the several month downtrend, but doesn’t necessarily mean the stock will head for new highs. Long-term investors do have one reason to be bullish though: the long term weekly chart (logarithmic scale) shows that support for the long-term uptrend should come in around $400 - if the uptrend is to stay intact. This could be an area to pick the stock up, but I don’t advise buying falling stocks. Wait for a rally above $475, and preferably a pullback that stays above the recent low, before picking this one up.

SEE: Technical Analysis: Support And Resistance

APPL downtrend



Exxon Mobil (NYSE:XOM) hasn’t done much for investors since September. After a run-up through the summer months, the stock has moved predominantly sideways. Support is at the December low of $84.70; a drop below that indicates a decline in the $78 to $76 region. On the other hand, a rally above $91.50 would break the short-term downward trendline, potentially sparking buying interest. A move above $92 would confirm and set a target of $99. To reach this mark, Exxon will also need to get through the October high at $93.67, an area of potential resistance.

SEE: The Anatomy Of Trading Breakouts

XOM downtrend



Google (Nasdaq:GOOG) has been very strong since November; at that time it traded as low as $636 and closed out March 5 at $838.60. On all time frames the stock is in an uptrend, which is great if you are already in, but poses a risk if you’re looking to buy now. Short-term traders may be able capitalize on this uptrend, but for long-term investors there is very little support near current price levels. Minor trendline support is at $750, but more significant support doesn’t come in till $680 to $660 and then later at $600. From a risk/reward stand-point I prefer to wait for a pullback and then a bounce off one of these support levels before buying.

SEE: Support & Resistance Basics

GOOG uptrend



Walmart Stores (NYSE:WMT) closed on Tuesday at $73.72, off its 52-week high of $77.60 set in October. The overall trend is up though, and while it didn’t make a record high this week like the Dow, technically the stock still looks good. The stock bounced off an important upward trendline recently (intersecting at $69) showing the uptrend is still resilient. It also presents a buying opportunity as a stop can be placed below the trendline, limiting the risk on the trade. With the uptrend still going, the target is $80 to $85.

WMT uptrend



The Bottom Line
Even with the Dow hitting all-time highs, picking the right stocks and approaching them with a well-thought game plan, which includes managing the downside, is important. There are opportunities, but not all are worth the risk. Watch the S&P 500; it is a more reliable gauge of overall market health since it is larger index than the Dow. From a long-term perspective the S&P 500 is likely to hit resistance at 1600 (or before), based on the expanding range it has been in, going back to 2000. Keep this long-term perspective in mind when buying stocks with little support below them.

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