Breakout Fakeout Warning from Worlds Biggest Stocks

The top 3 stocks by market capitalization on the planet are Apple, Microsoft and then Amazon. With a combined value of almost $6 Trillion, more than the entire value of the Japanese stock market, investor reactions to their quarterly results are worth watching. While the old adage of Buy the rumor, Sell the News is likely at play for the whole Tech sector, the downward price reversals in these behemoths after blockbuster 1st quarter financials are notable. The Wall Street Fashion Show doesn’t care much about fantastic profits, sales growth or even positive guidance, unless they beat market expectations. In the case of these big 3, they did just that by UPOD (Under promising and Over Delivering). They all over delivered on financial top and bottom line beats as well as painting a Bullish outlook, yet prices fell on the news. Earnings in the current Q1 reporting season for the overall stock market are coming in 25% above consensus, yet stocks have stalled as we enter the final 2 weeks of this earnings season. Could this be a sign of a Tech wreck or the profit taking pause that refreshes? 

The Amazon Death Star has dominated every business sector it has pursued and began the 2020 pandemic with stellar stock price appreciation, doubling in price the first 5 months. Then Amazon (AMZN) and most of large cap tech began lagging the broader equity market without a new high for the past 8 months. Finally it appeared AMZN would deliver growth metrics that could not be denied by skeptical investors who had moved on to meme stocks (Gamestop) and Dogecoin. However, after its Q1 financial release last week, AMZN roared almost 200 points before giving it all back and then some over the next 3 days, down almost 10% from its after market highs. AMZN remains a premiere stock with more record highs likely this year, but investors may need to hold off buying the Death Star until after a general market correction. Tech companies in general are struggling in their public relations battle for buyers attention until the reopening stocks are actually fully open for business. Once Covid restrictions have been removed and consumers are free to spend down their record $6 Trillion pandemic savings pool, courtesy of Uncle Sam, then Tech can take the lead again. 

While AMZN beat consensus earnings by 62%, Mr. Softy (Microsoft) also beat forecasts, but that also triggered a quick drop to 3 week lows on the good news. Microsoft remains another great mega cap growth stock to own, especially after a 15 to 25% correction. For now this is another sign that Tech is out of favor on the equity fashion runway.


Apple is only 15 to 20% larger than its big brothers, MSFT and AMZN, but is in a class by itself. Apple was the first company in the world to reach a Trillion dollar valuation in 2018 and the first to hit $2 Trillion in 2020. At $2.2 Trillion today, Apple has the easy inside track on reaching $3 Trillion over the net year, well ahead of its mega cap competitors. Recently, Apple has been in a rare stall over the past 8 months as it digested a spurt of impressive pandemic related “stay at home” sales expansion. This slowing stock price momentum appeared to set the table for Apply to lurch forward with strong Q1 financials that were reported last week. Analysts were amazed by results that beat their optimistic expectations, yet Apple quickly fizzled and fell 8% in value from its after hours peak. This storied stock has grown rapidly despite its enormous size and like AMZN and MSFT, Apple is still worth buying as a fast growing tech stock on a further market pullback with an upside target of 170 to 190 a share when large cap Tech resumes it leadership role.


Last November we targeted a 3948 SP 500 Index and then refined the upside time and price window to an upper 4100’s objective by the end of April.  Prices are currently testing this target area while the Tech heavy Nasdaq is down 5%. With the 3 biggest of the ‘Vente’ stocks along with dozens of other household named companies heading south despite accelerating growth, it’s a warning for investors to keep diversifying toward small cap and economic reopening value companies this quarter. With tech already in a correction, a broader based SP 500 Index decline this quarter may be mild until the reopening Dow type stocks peak in a post Covid world perhaps this summer. Cloud and subscription stocks are still core recommendations for portfolios and any further Sell in May and Go Away themed liquidation should offer good entry points for bargain hunting investors.


 Cathy Woods’ ARKK fund is the zeitgeist of the technology sector this past year. While the broad tech sector is down 5% from record highs last week, ARKK has fallen 30% since February as investors have already priced in future growth and moved on to less appreciated reopening stocks. Government stimulus, Fed money creation and record consumer savings accounts will keep this Bull market rotating between various investment groups until the the post Covid service economy is fully open. At that point the market will begin anticipating the end of fiscal and monetary  accommodation leading to increased volatility and deeper Bull market pullbacks.


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