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Bullish on big tech
While everyone seems focused on small-caps, value, commodities and crypto, I am going to shift gears and present the bullish case for owning big tech.
Big tech weekly charts
Let’s first begin with some recent breakouts. MSFT and TSLA made breakouts last week and have seen great follow-through this week:
GOOGL is in the process of breaking out this week. Recall this bullish post on GOOGL from late July: link.
Here is some older activity: FB, AAPL, NFLX made breakouts in Apr, Jun, Aug, respectively. FB has been weak recently, but it’s nearing some major support.
Finally, here’s AMZN. The stock made a breakout in June which failed. It’s setting up for another attempt.
Let me explain why I’m particularly interested in big tech as opposed to all the other areas of the market.
First, here’s FANGAM vs. SPY. For the past decade, big tech has been in a strong uptrend relative to the broader US stock market. And this doesn’t even include Tesla. There is no reason to think this uptrend is over. Quite the opposite: it is setting up for a breakout.
“Why large-caps and not small-caps? Don’t small-caps have more juice?”
The monthly chart of SPXEW:SPX shows that the equal-weight S&P 500 is in a downtrend relative to the cap-weighted S&P 500. This is another way of saying mega caps are outperforming smaller companies within the S&P.
“But aren’t we in the midst of a cycle where value & commodities will outperform, like 2002-2007?”
Despite the strength in banks & oil stocks over the past 12-months, the TSX:SPX is still in a strong downtrend. This doesn’t look at all like 2002-2007, at least not based on this chart.
The above chart is saying we still want to be in growth-heavy US stocks instead of value-heavy Canadian stocks. The MSCI US Growth:Value chart below is another, more direct, way of driving home this point. In Q2 last year, growth made a 5-decade (!) base breakout relative to value. And it’s held up well since that breakout.
I’ll conclude by saying that the 3 most attractive areas of the market that I see right now are FANGAM (big tech), farmland, and gold miners. I wrote posts for the latter two earlier this month - please check them out.
Important Disclaimer: This blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.