FANG Stocks Breaking Down?

The S&P500 inched backwards, but barely, last week. It closed down about 0.3%. But volume was very light, so there was no big rush for the exits. Also, volatility—while inching higher—still ended the week near multi-year lows, which also suggests that investors and traders were not panicking.

In US macro news, the results were mostly poor. While productivity finally beat expectations, it did so by coming in at 0.0% rather than the negative 0.2% that was predicted—this is certainly not some big improvement in the poor productivity trends that began several years ago. The PMI services index missed, as did ISM services. Consumer credit logged a dismal result—its lowest reading since August 2011! Initial jobless claims also missed. Factory orders met expectations, but once again, the hurdle was very low—negative 0.2%. As usual, there are zero signs that the US economy is growing at a healthy rate.

From a technical analysis point of view, last week’s tiny retreat was barely noticeable on the weekly charts. While more visible on the daily charts, there’s no real technical damage to note here too. What hasn’t changed is the fact that the S&P is extremely overstretched to the upside and this condition is showing very few signs of changing anytime soon.

That said, there is one sign that things are not so well beneath the surface of the S&P500. Last Friday, the four famous FANG stocks (Facebook, Amazon, Netflix and Google) all suffered big and some might say crash-like drops. This is important because the significant jump in the S&P500 over the last year, and in particular over the last six months, has not occurred with very broad-based participation. Instead, it’s come about because a few “generals” in the army of stocks have made exceptionally disproportionate gains, which pushed up the price of the index while leaving most of the “soldiers” in the army well behind.

So Friday’s mini-crash in the stock market leaders is notable because if even these stocks are starting to hit a wall and retreat by meaningful percentages, then the odds of a general stock market retreat, a retreat that would be considered significant, go up….a lot.

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