The Dow looks poised to end the year up more than 63% since its March 23 bottom, and just over 5% for the year.
Big tech names have propelled the index higher this year, with names like Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Salesforce (NYSE: CRM) among the top-performing names, gaining 82%, nearly 41%, and almost 37% for the year, respectively.
Heading into 2021, Piper Sandler chief market technician Craig Johnson said he’s sticking “with the winners here. Apple has definitely made Santa’s nice list this year.”
“When you look at the chart, you’re still in a very nice well-defined uptrend,” Johnson said. “You can see that we’ve come back, successfully retested it, and we’re getting back to retesting those old highs. So, from my perspective, I’m going to stick with Apple. I think it’s a gift that just won’t be returned this year.”
Simpler Trading’s Danielle Shay said she is betting Microsoft will deliver further gains in the year ahead.
“Microsoft has shown consistent earnings growth, and they’ve also shown a very consistent run into earnings the two to four weeks before that report,” Shay said. “So for me personally, I love buying long calls in the earnings series to take advantage of the rise in [implied volatility], in addition to selling put credit spreads going into the earnings report.”
Microsoft is expected to post its next round of earnings in early February.
From a technical perspective, there appears to be a pennant pattern forming in Microsoft’s chart that indicates further consolidation in the coming weeks before the stock breaks out to new highs.
A pennant is a continuation pattern that forms when there is a large movement in a stock—the flagpole—that is followed by a consolidation period with converging trend lines, forming the pennant. When the stock breaks out of this consolidation, the stock will continue on in the same direction as the initial large movement, forming the second half of the flagpole.