In late 2017, I kept warning readers of this blog that the unprecedented low volatility, the obscene growth of the FAANG (FB, AAPL, AMZN, NFLX, GOOGL) stocks, and the length of time since a correction or consolidation were all signs of a likely slowdown. In fact, I wrote a blog on halloween that year outlining why the market looked so “scary” This, when everyone else was irrationally exuberant about the market. Every once in a while I get something right…the market effectively topped in early 2018 – and has only put in marginally higher highs (effectively a sideways market) since then. More importantly, my thesis on the FAANGs has proven to be accurate.
In May of this year, I reiterated my conviction that the FAANG’s would be under pressure. Today, we see AMZN opening lower on a disappointing quarter. But that’s just part of the story. The stock has been under pressure since early 2018, per my earlier convictions. Currently, support at $1700 is being tested. You dont want to see that break for more than 3 days or so. If it does, we’ll likely see another hundred dollars on the downside.
Below are the charts of Facebook and Netflix. Not too bullish looking, are they?
Google, on the other hand, doesn’t look so bad. But you really want to watch their earnings reports. Any sign of weakness, and they’ll play catchup with the other guys. An upside breakout through $1275 might prove bullish.
Apple, which is sometimes given “honorary FANG membership”(adding another “A” to the acronym) is the one bullish chart of the group. The recent breakout above $230 proves the difference. Of all of the FAANG stocks, this is the one I’d be most bullish on. Any pullback to $230 might be a good opportunity to enter the stock – assuming that pullback isnt due to a poor fundamentals.
Two messages come out of the FAANG problems. First, it is typical for a market to be in its final bull stage when one group moves almost parabolically – creating a narrow leadership within a rising market. This was the case in 2017. Next, when we see a rotation out of that overbought group (such as in 2000 during the tech bubble or in 2008 when oil was all the rage) this may lead into a corrective period. Which, in this case, it has. The market has been in a consolidation phase for a year.
Will the weakness in the FAANGs (AAPL and GOGGL aside) lead into a bear market? Recall that weakness in the market leaders in 2000 and 2008 changed the market direction (let alone the era of the nifty fifty stocks of the 1960’s that led into the sideways markets of the 1970’s). That is to be seen.
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