De-Fang’ed

De-Fang’ed

November 26, 2018 Off By Chuck

De-Fang’ed

While we can debate whether we are at the end of the bull market, looking back, there is no question the FAANG stocks (Facebook, Amazon, Apple, Netflix and Google) had been the leaders of rising stock prices. But ever since the broad market’s peak in September, these same stocks have been leading the market lower. In fact, collectively they have lost more than $1T in stock market capitalization since that high was put in. Based upon my methodology 4 of the 5 have put in a long term sell signal, the most recent Netflix occurred last week.

Taking a look at the Netflix, NFLX, chart it should be obvious by now the head and shoulders topping pattern that has developed. Currently, price has fallen below the pattern’s neckline triggering a sell (or short if you are aggressive) signal. The pattern’s target is down at Q4 2017’s low, labeled T1. Notice how price has fallen and has, at least so far, held below its flat 200 day moving average.  In the upper pane RSI momentum warned of a potential correction/reversal as it formed divergence with price (momentum was falling while price was rising).  All of these signals point to the potential of much further future downside.

With so much current broad-based downside momentum this is an idea on the short side for aggressive, experienced traders only. The high probability reward-risk ratio is not as favorable to meet my needs as it is just slightly less above 1.5, well below the 3:1 target as such I will be just observing this from the sidelines.