Mega cap is a designation given to the largest companies in the investment universe. Traditionally, active traders would steer away from the largest companies in the market due to the limited growth prospects and relatively slow-moving nature of the underlying business. However, in recent times, this dynamic seems to have changed. Mega caps are now often sought after due to their significant influence in different industries and built-in leverage from globally recognized brands.
With financial markets reaching new all-time highs in recent days, it now appears as though the largest companies could be the ones to lead the move even higher. In this article, we'll look at several charts and try to determine where prices could be headed over the weeks and months ahead.
- Mega caps are not usually the focus of active traders, but breaks above key resistance suggest that this group could lead a move higher.
- Breaks beyond the resistance of well-defined triangle patterns suggest that mega-cap stocks are positioned to move higher.
- Procter & Gamble (PG) and Johnson & Johnson (JNJ) are stocks that could be worth watching over the remainder of 2021.
SPDR S&P 500 ETF (SPY)
Traders interested in analyzing the performance of the largest companies in the United States often turn to exchange-traded funds (ETFs) such as the SPDR S&P 500 ETF (SPY). Looking at the chart below, you can see that the fund has been trading within an extremely strong uptrend for many months. Fundamentally, not all companies within the S&P 500 would be considered a mega cap. However, it is interesting to note that the S&P 500 chart pattern looks nearly identical to that of the Vanguard Mega Cap ETF (MGC).
The strong support offered by the 50-day moving average will likely be looked to by active traders as a guide for determining the placement of buy and stop orders. Amazingly, the recent break beyond the previous swing high suggests that the momentum is still in the favor of the bulls and that prices are poised to continue higher over the weeks and months ahead.
The Procter & Gamble Company (PG)
With a market cap of approximately $345 billion, it is unquestionable that The Procter & Gamble Company (PG) is a mega cap. Home to some of the world's most recognizable brands such as Tide, Downy, Bounce, Tampax, Gillette, Head and Shoulders, Old Spice, Swiffer, Febreze, Crest, and more, the company holds a competitive advantage that many would deem nearly impossible to rival.
As you can see from the chart, the price has recently started to pull away from the support of its long-term 200-day moving average. Recent gains have triggered a bullish crossover between the 50-day and 200-day moving averages, which as a common long-term buy signal used to mark the start of a major move higher.
As confirmation, traders will also want to take note of the short-term ascending triangle pattern as shown by the trendlines. The recent move above resistance suggests that the bulls are in control of the momentum and that the stock price could be on route to a target near $150, which is equal to the entry price plus the height of the pattern. Stop-loss orders will likely be placed below the swing low near $137.50 or the 200-day moving average at $133.67, depending on risk tolerance.
Johnson & Johnson (JNJ)
Another well-known mega cap that looks well positioned to lead the broad market higher is Johnson & Johnson (JNJ). With a market cap of approximately $455 billion, Johnson & Johnson offers traders exposure to products across the healthcare field, including its Janssen COVID-19 vaccine (Ad26.COV2.S).
Looking at the chart below, you can see that a well-defined ascending triangle pattern has formed over the course of 2021. Recent price action suggests that the momentum is in the favor of the bulls and that the share price could be headed toward a target of $190, which is equal to the entry point plus the height of the pattern. Stop-loss orders will likely be placed below the upper trendline, the 50-day moving average, or the 200-day moving average, depending on risk tolerance and investment horizon.
An ascending triangle is a chart pattern used in technical analysis. It is created by price moves that allow for a horizontal line to be drawn along the swing highs, and a rising trendline to be drawn along the swing lows. The two lines form a triangle. Traders often watch for breakouts from triangle patterns. The breakout can occur to the upside or downside. Ascending triangles are often called continuation patterns since the price will typically break out in the same direction as the trend that was in place just prior to the triangle forming.
The Bottom Line
Mega-cap companies represent the world's largest companies and are often regarded as slow-moving giants when it comes to investment candidates. However, based on chart patterns such as those discussed above, it appears as though this group could be the one to watch over the remainder of 2021 because these massive companies could very well be the ones to lead the way higher.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.