I don’t know what’s going to happen tomorrow or next month or next year. No one does. But today I just want to keep it real and bring up an interesting development that is difficult for me to ignore. It’s no secret that the stock market currently has terrible breadth as only a handful of names were able to make new highs a couple of weeks ago and the only index to make a new high was the Tech-heavy large-cap Nasdaq100. The rest of them all put in lower highs (which is characteristic of a downtrend).
As the cliché goes, “This is a market of stocks, not a stock market”. But cliché or not, it’s true, and also under appreciated. When the market as a whole is making new highs, you want to see that being confirmed by a larger number of stocks and sectors also putting in new highs. The last thing you want to see is the opposite, as we are seeing today (and in the Fall of 2007 coincidentally?). If you recall, as the major averages were hitting new highs in October of 2007, only a few individual stocks were still hitting new highs. A popular group of those were being referred to as “The Four Horsemen” at the time as they were some of the only names still holding up. This group included, Google, Apple, Amazon and Research in Motion (Blackberry).
I remember this time very clearly as there was an ongoing joke at work that if you weren’t trading these 4 names, why bother even coming in? This is strictly anecdotal, of course, but an interesting coincidence that the media is constantly referencing a new group of stocks called “FANG”. The label for this group may not have been made up yesterday, but the frequency of mentions continues to grow. The FANG stocks include Facebook, Amazon, Netflix and Google. The question I pose today: Is FANG this cycle’s Four Horsemen?
I don’t know the answer and neither does anyone else reading this right now. But I find it very difficult to ignore the similarities between these two groups of stocks. Remember, like the 4 Horsemen, these FANG stocks have nothing to do with each other. Sure, they’re in the Internet space. They are each part of the Dow Jones Internet Index which is the only sector I see still hitting new highs recently (I guess Twitter’s stock must have not gotten the memo).
Take a look at each of the FANG charts. Then take a look at how many stocks are hitting new highs compared to how many were doing so a year or ago and a year before that. Compare this lack of participation sort of environment to that in 2007. Also look at the opposite scenario in the first quarter of 2009, where most stocks and sectors had already bottomed out in the 4th quarter of 2008. The “Market of stocks”, if you will, bottomed out in Q4 2008. It wasn’t until March of the following year that the indexes themselves put in their ultimate lows. To me we are looking at the opposite scenario today.
What do you guys think? Am I way off or perhaps on to something here?
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