How The Mega-Tech Stocks Set-Up For 2012

By Cory Mitchell | December 27, 2011 AAA

As the year draws to a close, the major tech stocks - IBM, Apple, Google and Microsoft - made headlines this year, all for different reasons. Three of the companies have outperformed the broader market, represented by the S&P 500 SPDR (NYSE:SPY) ETF which is down 0.52% YTD, and one of these tech giants has not. Heading into next year, let's take a look at how the charts are setting up, and which of the mega-caps is worth owning going forward.

International Business Machines (NYSE:IBM) has so far been the star performer of the mega-capitalization technology stocks. Up 25.27% YTD to $184.75, from $147.48, the stock has been well-supported throughout the year by its 200-day moving average. With on-balance volume rising and a steady trend higher in the price, if the price continues to push above the 50-day moving average it will be a 'buy' signal. Stop loss orders can be placed near the 200-day moving average or around $175, which is just below the recent swing lows. A push above the 50-day moving average is likely to trigger a re-test of the recent high at $194.90, and if that is exceeded, the target is $210.

Apple (Nasdaq:AAPL) has the largest capitalization of the technology stocks and has had a solid year so far, up 22.38% to $403.33, from $329.57. The stock is currently climbing higher after a fall from the October high at $426.7. The next resistance area is $410, and if cleared, it sets up a likely retest of the October high. A move above the high provides a profit target of $450. From August through December, the stock was well-supported above $353; therefore, a drop below this is bearish. The long-term upward trendline that began in early 2009 currently intersects at $363 (close to 200-day moving average) and should also be watched, as a drop below could trigger selling. Declining and diverging on-balance volume is signaling underlying weakness. (For more, see What does it mean to use technical divergence in trading?)

Google (Nasdaq:GOOG) has managed to eke out a small gain this year, outperforming the broader market. The stock is up 4.76% YTD to $633.14 from $604.35. It has been a volatile year for Google, with the price of the stock moving $169.94 – only to end up nearly flat for the year. That volatility could bode well for the stock now, though. If the January high of $642.96 can be exceeded, the stock could move aggressively higher, challenging the $716 resistance level seen back in late 2007. On the other hand, a drop back below $610 is likely to be short-term bearish. Further support is at the 200-day moving average and longer-term upward sloping trendline support is just below $500. (For more, see Support & Resistance Basics.)

Microsoft (Nasdaq:MSFT) has been the underperformer of the group, down 6.97% to $26.03, from $27.98. The stock had been moving within a tighter and tighter range throughout the year, creating a symmetric triangle chart pattern that extends back into mid-2010. The breakout of the triangle could largely impact the long-term direction of the stock. A rise above $27 will break the pattern to the upside, providing a long-term target of $36. There is significant resistance between the breakout price and $31.58 (2010 high) though, and should be noted. On the other hand, a drop below $24 is long-term bearish, as the pattern would break to the downside, providing a target of $15. The downtrend in the on-balance volume indicator points to declining buying interest in the stock. If a breakout of the pattern occurs, stop loss orders can be placed just outside the pattern on the opposite side of the breakout. This is currently about a $2 risk per share.

The Bottom Line
International Business Machines and Apple have had a great year, Google has outperformed the market and Microsoft has been the laggard. These stocks each present unique opportunities going forward, as the chart of each company sets up very differently. There is potential upside in these stocks if the price can push through resistance or create an upside chart pattern breakout, but the support levels must also be watched. There are warning signals present in some of these stocks and a breach of support means more selling could occur. IBM is setting up well, and Google has potential if it can break through resistance. Apple is more neutral, but it looks good if it can clear resistance, and the long-term direction of Microsoft will likely be largely swayed by the triangle breakout direction. (For more, see Analyzing Chart Patterns.)

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Charts courtesy of stockcharts.com

At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.

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