For the last few years, the market has been discussing the fearless five stocks. Facebook, Apple, Amazon, Netflix and Google. From the top in September, these stocks have become pain in the portfolio. Almost every portfolio managed in a wealth management account held these stocks. Any broker trying to be different had to justify to clients and managers why they were not in the portfolio. If the client also owned index funds they were doubly exposed.
After reviewing the individual charts, the bottom chart shows the sentiment indicators to be near excellent low risk locations to look for upside appreciation. Look at the charts, trying to enter near the lows to keep risk defined with stops close by.
With the Facebook stock falling from grace, it seems to be losing favor as the first part of the FAANG grouping. However, on the chart below, we can see it is only the second worst performer since the market high. However, it was already in a downtrend before the overall market peaked. Facebook’s total decline peak -to-trough is 42%. You could trade Facebook, but you might be better off just picking one of the others until they get their issues reduced.
To mark this extreme low in sentiment, I thought we could use a new acronym of AANGST. Apple, Amazon, Netflix, Google, Spotify, Tesla. These are some of the more topical names in the market this year.
Apple is down 34% from the highs. These significant pullbacks are large by any measure, especially when they are so widely held. An entry into AAPL around this week’s low is a hard entry but a higher low on any daily candle and I would want to trade it from the long side.
Amazon is down 33%. To trade it, I would trade against the bottom of the recent range at $1420. If it breaks below $1400, let someone else find support. A tight entry here on any sign of an upturn and you have a nice place to define risk against.
Alphabet is down 23% which is significant, but much better than Apple or Amazon. I would trade GOOGL on any sort of uptrend starting with a tight stop below $1000. With the spin out of their MaaS (mobility as a service) venture, there could be huge upside.
Spotify was supposed to be one of the great music platforms that could stand up against the big tech companies. The hype lasted four months and the stock rolled over. I would be more worried that this chart ends up looking like the SNAP chart which traded as high as $29 and less than two years later trades at $5. Maybe it is different this time, but the big players listed above are a dominant bunch. We’ll evaluate if this chart ever shows bigger upside at the end of 2019. Avoid for now and let someone else build the base.
Lastly is Tesla. I don’t know what to think. The chart has been range bound for the better part of two years. This week it dropped $50 with another day to go. It is sitting on the 40 Week Moving Average which is almost a flat line for the entire 2018 year. With wildly bullish fans of the car, and accounting types widely ridiculing its debt structure, the stock has extreme pressure both ways. They hit one quarter of financial profit but lots of industry people are quoting cars not registered with the Department of motor vehicles etc. This next quarterly report has the tension of a slingshot either direction.
I think the best way to trade TSLA is to buy it near the lows around $250. If it breaks down, you are out quickly with a smaller loss. Buying a breakout above the $400 level seems risky, but stocks hitting new highs have no overhead resistance. Tough call!
Those charts have some angst in them, that’s for sure. Let me show some sentiment indicators that suggest we are in rare air for a risk reward trade. Below are two sentiment indicators. The percentage of NASDAQ 100 charts still on a buy is at 14%. ($BPNDX). The only two other times since 2002 is in 2002 and the Great Financial Crisis. I don’t see banks imploding here, so it suggests we are very close to extreme lows in that sentiment.
The second panel in black is the percentage of stocks above the 200-day moving average. $NDXA200R. This is at 13.3% of the stocks. Once again, this is as low as it gets with the exception of the financial crisis.
All that to say, try to get your buy list ready. The opportunities should be significant! You don’t need to buy right here, but any higher high on the daily also gives us some control of downside risk.