Home 2020 Commentary: Paul Ebeling on Wall Street, FAANGs Topping

Commentary: Paul Ebeling on Wall Street, FAANGs Topping

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Last Week in Review: Another week of selling, particularly in the mega-cap techs

The China virus stock market rally had a mild, nothing wk if you only look at the percentage change.

The DJIA lost just 0.03% in last week’s trading. The S&P 500 index retreated 0.65% and the NAS Comp 0.6%. But while those were modest moves, they all closed near the wk’s lows, even with a Friday afternoon bounce.

The S&P 500 and NAS Comp finished below their 50-Day MA lines and undercut their recent lows.

Some new breakouts faded while many big winners from the mega-tech rally suffered significant losses.

Quad Witching Friday puts new entries in a 3-day pause mode, but some market action suggests the selling could be near its end, other action suggest the worst is yet to come for the FAANGs.

Technical Analysis

The 50-Day MAs are falling for Microsoft, Amazon and Google parent Alphabet, but still rising slightly for Apple and the NAS 100.

The recent pullbacks in mega cap tech stocks have now gone far enough and lasted long enough that they have triggered chart signals warning investors not to buy these stocks on the dips.

The chart signals flashing caution are the widely followed 50-Day SMA, which many on Wall Street use as a guide to the short to intermediate-term trend.

The most forceful of the warnings are in 3 of the 4 biggest companies by market cap, which have helped drive the rally in the broader stock market since the 23 March lows: Friday, Microsoft Corp. MSFT, -1.24%, Amazon.com Inc. AMZN, -1.78%  and Google’s parent Alphabet Inc. GOOGL, -2.41%GOOG, -2.37%.

Slightly less forceful warnings are also flashing for shares of the biggest of the big: Apple Inc. AAPL, -3.17%, as well as the Invesco QQQ exchange-traded fund QQQ, -1.27%, which tracks the tech-heavy NAS 100 index NDX, -1.29%, and the S&P 500 index SPX, -1.11%. Their chart patterns and sentiment suggest the intermediate-term outlook has switched to Neutral, and to Bearish.

Let’s use MSFT as the example

Microsoft’s stock closed lower Friday by 1.2% 200to .39, marking the 9th session running it which it has closed below its 50-Day MA (50-DMA). If that’s not enough to scare Bulls, or enough to embolden Bears, the 50-DMA started rolling over on 11 September, and accelerate lower since.

At Friday’s close, the 50-DMA was at 210.730, or 27.8c below Thursday’s closing 50-DMA at 211.008, which was 19.9c below Wednesday’s 211.207.

Wednesday, the falling 50-DMA acted as resistance, capping the stock’s attempted rally at the open. That is a change from late July to mid-August, when a rising 50-DMA acted as support.

The QQQs closed below the fund’s 50-DMA Friday for the 2nd day running, and for the third time last week. It was up just 0.094 pts Friday, after rising 0.207 pts Thursday and 0.360 pts Wednesday, I do not expect that to last.

The QQQ has fallen 9.5% so far in September and is currently heading toward the worst monthly performance since it dropped 11.5% in November 2008.

The S&P 500 dipped intraday below its 50-DMA last Monday and Thursday but recovered to close above it. The 50-DMA finally gave way Friday, and the index closed below it for the 1st time since 23 April.

This action does not scream sell for these stocks, it gives investors a reason for pause before they buy the dip.

So, pay attention, it is your money, so it is your responsibility. And know that there will always be a trade.

Have a healthy week, Keep the Faith!

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Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.