Markets often enter corrective phases as former leaders roll over, and new leaders take their place. Rotation is a healthy thing, and can keep a bull market rising. But – such changing of the guard often involves a bit of chaos as the leading stocks give ground. Market leading stocks or sectors which have become disproportionally influential on indices and investors’ portfolios hurt the broader markets as they round over. It isn’t until the new leaders find their voice, so to speak, that the market can re-enter a bull phase. This is why I spend so much time talking about the 4 Phases of the market in my book, Sideways. If you haven’t read the book – may I humbly recommend you do so. I feel that understanding this principle is vital for long termed stock market investment success.
Over the past number of years, the market has been highly influenced by the FANG’s…I tend to add one more ”A” into the FANG acronym to include Apple. The FAANG’s (my version) are: FB, AMZN, APPL, NFLX, GOOGL.
I’ve noticed that the FAANGS seem to be showing signs of slowing. Most of them did NOT make new highs in early May when the SPX did. Let’s take a look at these 5 stocks on an individual basis to see how they look:
Facebook hasn’t made a new high since last summer, when it hit $215. Its currently around $185, and the recent high of under $200 did not match the heights of the SPX. Meanwhile, the stock is losing ground along with the broader markets – suggesting that it is not acting like an outperformer on the way up, despite being just another falling stock on the way down.
Same story for Amazon as with Facebook. No new high in May, despite the new high on the SPX. Less upside, but all of the downside. Hmmmm…
With the China trade deal causing concern, Apple has been a bit more vulnerable than our first two charts. Yet, well before the trade fears began, Apple had substantially failed to put in a new high. At least AMZN was close. But Apple—not so much. And it is disproportionally getting hit on the chin as the market sells off. Certainly this market leader is showing signs that the honeymoon has ended.
As with the first three charts – no new high in May for Netflix. Interestingly, the stock is holding its own in the current trade war selloff. It’s been flat lining for most of 2019. Nonetheless – the lack of new highs in a broader market rally to early May suggests that NFLX – while not as volatile as the others at the moment – is losing some of its charm. Yet another rollover and rotate candidate, methinks.
Google is the one stock of our 5 leaders that seems to be holding true to the broader SPX chart pattern. It made a new high in early May along with the market. Yes, it has declined with the rest of the market – but not grossly more so. So far, this seems to be the one kid in this class who might achieve a passing grade.
Be careful out there. As I noted on my last blog, the market is seeing some rotation into defensive sectors. And it’s not just been since the China trade talks went sour. There’s clearly some changing of the guard going on here. And that means some interim volatility until the new boss(es) takes charge. I’ve said it before, and I’ll say it again – trade, rotate, and be aware.
Ask me Anything
For those who missed my last blog—I noted that I’ll be posting answers to broadly interesting questions regarding my technical take on sectors, commodities and markets. Post a comment below and I’ll do my best to answer it next week.