Now that SpaceX (SPCX) is a public company, moving into the public arena, and the focus is squarely on that and upcoming glamour trades, I’m doing what I typically do. I’m looking elsewhere. I’ll catch y’all after some of the space stocks blow up.
I’ve shifted to the top 20 U.S. mega-caps to hunt for value under the hood. At least on a trading basis, since so much of the market now reacts at speeds we investing veterans of the last century can’t easily rationalize.
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If the broader index concentration fractures, I want to capitalize on whatever is big but not turning bad, in the wake of this hyper-focus on SPCX. And with its entry into the Nasdaq-100 Index ($IUXX) adding some immediate influence to its standing, beyond the sheer size of its market cap.
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AI is “one of the largest industries ever” ...and it’s already disrupting this $1T market. The next AI wave won’t look like chatbots. It will look like this.I started with the holdings of one of my favorite exchange-traded funds (ETFs) to “proxy” what the S&P 500 Index ($SPX) is doing. The Ishares Top 20 U.S. Stocks ETF (TOPT) owns the top 20 stocks by size in that index.
www.barchart.com I started by narrowing that list down to five stocks with a summary of where I see them right now, business-wise. The narrative, if you will. Then I’ll knock down those five and comment on those, along with a quick summary of what I see in the chart. Consider these my most likely places to look for technical value in a stock market now fixated on everything but traditional approaches to evaluating businesses.
Cutting 20 Mega-Caps Down to 5
Alphabet (GOOG) (GOOGL)
Alphabet (GOOG) (GOOGL) represents the ultimate double play on value among the tech titans. It maintains an ironclad, cash-generative monopoly on global digital advertising and search traffic while quietly possessing one of the most mature, heavily integrated cloud and enterprise AI frameworks in existence. It has the fortress balance sheet to absorb economic friction without relying on speculative hardware hype.
www.barchart.com GOOG and many other Magnificent 7 stocks all have the same problem, technically speaking. They are acting like this is the beginning of the end of the selloff from their peaks, not the end of the beginning. That rounded top above is only partially offset by the fact that the daily PPO is nearing a past bottom level. Remember, this is a daily price chart. The weekly does not support a low-risk trade here.
Amazon (AMZN)
Amazon (AMZN) is perfectly positioned because its primary profit engine, AWS, directly benefits from the massive data center buildout without requiring the company to design its own silicon. Simultaneously, its retail and logistics arms have completely optimized their cost structures over the past two years. This gives the company an unassailable infrastructure moat coupled with highly resilient corporate cash flows.
www.barchart.com Take what I said about GOOG, and I say “ditto” for AMZN. Similar chart.
Berkshire Hathaway (BRK.A) (BRK.B)
Berkshire Hathaway (BRK.A) (BRK.B) is the quintessential fortress for a late-cycle, top-heavy market regime. Its massive, record-breaking cash pile creates an unparalleled cushion that allows Warren Buffett to exploit distressed assets when the algorithmic casino pulls the rug on growth. Its core operating businesses — spanning insurance, rail, and utilities — generate non-negotiable utility cash flow in any economic weather.
www.barchart.com BRK.B is an oasis within this group, chart-wise. A steady bottoming process could be built. But with all that cash on the balance sheet, this is more a “don’t lose” situation than a major upside one.
JPMorgan Chase (JPM)
JPMorgan (JPM) functions as the undisputed sovereign of the financial sector. Because of its "too-big-to-fail" structural tier, it consistently vacuums up cheap deposits from regional lenders during periods of banking sector stress. It is uniquely engineered to extract steady, high-margin net interest income from a high-for-longer interest rate environment while leaning on its world-class investment banking desk to capture corporate restructuring volume.
www.barchart.com JPM’s chart is one of the better-looking in this group of 20, but that says a lot about how bad many others are. There’s upside here, but I wonder if it is simply due to the potential for rates to drop. We’ll see.
Johnson & Johnson (JNJ)
Johnson & Johnson (JNJ) provides an elite, non-cyclical safe-haven within the health care landscape. Now completely unencumbered by its slower-growth consumer health spinoff, JNJ is a pure-play pharmaceutical and medical device powerhouse. Its operations are completely decoupled from the economic cycle because the baseline demand for life-saving therapeutics and elective surgical equipment moves forward regardless of inflation.
www.barchart.com Finally, there’s JNJ. Similar to JPM, I can see a path to some gains, as the PPO is just turning positive. But enough upside to invest heavily in it? Not really.
The Bottom Line
The bottom line is that this exercise allows us to start with a high bar. Looking for a good narrative is easy. Looking for a signal that price will actually back up that narrative is getting much tougher. By the day, in fact. Be careful assuming that the top stocks will continue to carry the load for the S&P 500 Index.
Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob's written research, check out ETFYourself.com.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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