Live By The Faang, Die By The Faang
Jay Kaeppel | Jun 15, 2017 10:45AM ET
It’s been a heck of a run. As you can see in Figure 1, if you were in the “right places at the right time” you did, um, pretty well for yourself.
Figure 1 – FAANG stocks “to the moon” (Courtesy AIQ TradingExpert)
The index in Figure 1 includes the following 9 tickers: Apple Inc (NASDAQ:AAPL), Amazon.com Inc (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB), Alphabet (NASDAQ:GOOGL) Inc C (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), Netflix Inc (NASDAQ:NFLX), NVIDIA Corporation (NASDAQ:NVDA), Priceline.com Incorporated (NASDAQ:PCLN) and Tesla Inc (NASDAQ:TSLA).
(See also The Post-Election/Year ‘7’ Bermuda Triangle )
As you can see in Figure 2, this particular grouping hit a bit of an air pocket in the last week.
Figure 2 – “Trouble in Paradise?” (Courtesy AIQ TradingExpert)
So is that the top? As I am not good at predicting things, I will defer to my standard answer of “It beats me.” But the real point can be summed up as follows:
- These stocks have driven the overall stock market higher in recent years.
- It can be argued that these stocks have “gone parabolic” (which is fun while it lasts but….)
- When these stocks finally start to break, history suggests that this will not be a positive development for the overall stock market.
In Figure 1, I have drawn a 30-week moving average. There is nothing magic about 30-weeks and an eventual drop below the 30-week average does NOT definitively imply that a bear market is underway.
But I would keep an eye on these stocks anyway. Because if and when they do start to break in earnest, the overall stock market may be in a whole lot of trouble.
Update on Warning Signs to Watch For
In this article I wrote about four tickers that might offer some “early warning” signs if trouble is coming in the stock market. In general, there really are no “warning signs” yet as most of these hit new highs recently as you can see in Figure 3.
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Figure 3 – Four Tickers to Watch (Courtesy AIQ TradingExpert)
I wouldn’t stop watching them though. If these – and the FAANG stocks – falter, the time to turn defensive will be nigh.
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