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3 Mega-Cap Stocks to Tackle the S&P 500

Chris Tyler
·5 min read

It was far from easy at times, but at the end of the day (or rather, the end of 2020), the S&P 500 has enjoyed a terrific year. Still, what will tomorrow hold for the benchmark index and for some of the biggest of the large-capitalization stocks? Looking out into the first quarter of 2021’s game, the scorecard may read “S&P 4000” as the price charts of three mega-cap stocks prepare for further gains toward that round number. Let me explain.

16% is nothing to sneeze at. Well at least in the context of stock market performance it’s not. Historically, annualized returns have yielded just a hair under 10% for the U.S. market. And in 2020, the large-cap, broad-based S&P 500 benchmark is set to deliver 60% more than what investors should typically expect to earn. As it’s happened amid the Covid-19 pandemic, I don’t think investors are allowed to bearishly grumble.

For some investors, the story gets a good deal better though. Think big, as in mega-cap stocks big!

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In an index made up of individual stocks, many of the S&P 500’s constituents have pulled their weight to ensure this year’s returns. 2020’s top performer is Tesla (NASDAQ:TSLA). Gains in excess of 700% appear helpful, but its shares were only recently added to the index. But in the future, as a capitalization-weighted index, TSLA’s mega-cap stock valuation of roughly $650 billion will also be of obvious importance.

A day of reckoning and more durable adverse conditions is bound to happen at some point. If nothing else, a huge assist for financial markets amid the Covid-19 pandemic courtesy of central bankers can’t continue indefinitely, right?

As we enter 2021, though, and with the market’s top trio of mega-cap stocks setting up for big-time breakouts, “S&P 4000” and big-time profits capitalizing on those price charts looks like an odds-on bet.

  • Apple (NASDAQ:AAPL)

  • Microsoft (NASDAQ:MSFT)

  • Amazon (NASDAQ:AMZN)

Mega-Cap Stocks to Buy: Apple (AAPL)

Apple (AAPL) discount purchase following 'W' pattern breakout
Apple (AAPL) discount purchase following 'W' pattern breakout

Source: Charts by TradingView

The first of our mega-cap stocks to buy are shares of Apple, the world’s largest publicly traded company. The next big thing for many Apple consumers may be an EV Apple Car. But that’s years away. In fact, it may be 2028 before the rubber meets the road. But for today’s lovers of all things Apple, it’s the AAPL price chart that’s revving up.

Technically, the past four months have been spent in a bullish “W” corrective base. A narrow breakout earlier this week could have bears foaming over a double-top pattern. But given this mega-cap stock’s track record out of larger price formations accompanied by long stretches of overbought stochastics readings, there’s reason to give a green light to AAPL’s latest effort.

Favored Strategy: March $140/$155 bull call spread

Microsoft (MSFT)

Microsoft (MSFT) monthly chart 'W' base looking very supportive for buyers
Microsoft (MSFT) monthly chart 'W' base looking very supportive for buyers

Source: Charts by TradingView

Microsoft, the S&P 500’s second-largest component, is the next of our mega-cap stocks to buy. It’s had a fairly solid year of giving to the index with shares growing more than 41%. Still, off and on the price chart there looks to be more good tidings to come.

Overall, MSFT shares have benefitted from the pandemic. Businesses and individuals have increasingly relied on its cloud services, as well as its software and hardware — i.e. Surface and Xbox — as they are stuck at home.

Technically, this mega-cap stock’s price action is similar to AAPL’s since the beginning of September. One key difference is in recent weeks shares have lagged. However, MSFT has triggered a buy signal this week above the “W” pattern’s mid-pivot of $224.62 formed in October. And while shares have retreated back beneath the breakout price, I’d caution investors not to throw in the towel.

Weekly stochastics are trending nicely inside neutral territory, which is nice to see. Further backing up that strength, a bullish oversold stochastics signal looks close by on the monthly time frame as the chart above reveals. Net, net it’s our contention this mega-cap stock has taken a healthy rest and is ready to go in 2021.

Favored Strategy: February ($215/$200) put / $240 call modified collar

Amazon (AMZN)

Amazon (AMZN) monthly bullish symmetrical triangle
Amazon (AMZN) monthly bullish symmetrical triangle

Source: Charts by TradingView

Amazon is the last of our mega-cap stocks to buy. Its valuation is a whisker less than MSFT with a market capitalization of $1.65 trillion versus $1.68 trillion. And it’s up there with the best of them for good reason.

Readers don’t need me to tell them how Amazon’s many services have improved life during the pandemic. From goods delivered to our doorstep to streaming entertainment and the company’s cloud services, business has been good for the tech giant. And when Covid-19 is finally in the rearview mirror, I suspect Amazon’s stickiness factor isn’t going to be at risk either.

Technically, this mega-cap stock’s price action has shaped up slightly differently than AAPL and MSFT.

The monthly chart shows more of a symmetrical triangle forming. As that’s a pattern which favors a continuation of the existing trend and this particular one setting up as a bullish second-stage base, I like what the AMZN stock chart has to offer. Throw in a neutral-positioned and flattening stochastics indicator and a pattern breakout through $3,400 to all-time-highs in January may be in the cards.

Favored Strategy: March $3,500/$4,000 bull call spread

On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.

Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

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