For most of the last two years, the market was driven higher by strength in big tech, specifically the FAANG stocks: Facebook, Inc. (NASDAQ: FB), Amazon.com, Inc. (NASDAQ: AMZN), Apple Inc. (NASDAQ: AAPL), Netflix, Inc. (NASDAQ: NFLX) and Alphabet Inc. (NASDAQ: GOOGL).
Those five stocks increased an average of 48 percent in 2017. That tremendous growth made them the darlings of Wall Street, driving the S&P 500 up over 19 percent.
But 2018 has been a different story. Facebook, Amazon, Apple, Netflix and Google are up an average of 16 percent year-to-date, while the S&P 500 is actually about 3 percent as of this writing.
Obviously, there is no single factor weighing on the markets. On a macro level, we’ve got geopolitical tensions heating up with Iran and seemingly cooling down with North Korea. Recent economic data suggests that we’ve arrived at a later stage of the economic cycle, and the Federal Reserve also recently suggested they’d be willing to let inflation exceed 2 percent.
And this is to say nothing of company-specific news. Facebook’s Cambridge Analytica scandal has grabbed the most headlines in 2018, but each of the FAANG stocks have their own industry-specific headwinds.
Now that we’re mostly through the January earnings season, and each of the FAANG stocks have reported earnings for the quarter, let’s take look at where they stand. We can do that using VantagePoint, a platform that uses artificial intelligence and machine learning to forecast future price movement 1-3 days in advance with up to 86 percent accuracy. VantagePoint uses intermarket analysis in its forecasts. In other words, it accounts for the interconnectedness of global markets, and analyzes how those relationships impact other markets.
Notice how shares of Facebook, Inc. (NASDAQ: FB) were in a clear downtrend for most of February and March. But that appears to have changed in mid-April.
The turnaround, when the chart shifted from red to green, can be pinpointed to April 10, the day Mark Zuckerberg testified in front of the Senate. On that day, the positive price action led to a crossover of VantagePoint’s key indicator: a predicted moving average.
In this case, the blue line represents where FB’s 6-day moving average will be three days in advance. A blue line that stays higher than the black line (a simple 10-day moving average) is a very bullish signal.
Despite some momentary weakness, Facebook’s strong Q1 earnings report and user growth have moved the stock even higher. All eyes will be on the company’s next earnings report in July to see if the Cambridge Analytica scandal actually impacted user growth, but until then the stock looks strong.
Here’s a list of the most correlated markets to Facebook, according to VantagePoint. Obviously, tech stocks like Apple and Google are correlated to Facebook. But notice how the stock is also correlated to things like the Japanese Yen and several energy stocks.
These could be good to pay attention to if you’re thinking of trading or investing in Facebook.
Shares of Amazon.com, Inc. (NASDAQ: AMZN) popped after the company exceeded Wall Street’s Q1 estimates for earnings per share and sales.
But like Facebook, the turnaround for the stock started earlier. In this case, we can point to the surprising info in Amazon’s 8-K that showed the company has 100 million Amazon Prime members, the first time they had publicly disclosed such data.
That news, combined with the strong earnings report, have put the stock squarely into an uptrend. You can see how the 3-month chart of AMZN is very similar to that of FB.
What makes this group of stocks so interesting is the effect they tend to have on one another. For example, VantagePoint has identified Facebook as one of the five technology stocks with the strongest correlations to Amazon.
But there are other markets that have been shown to have on impact on Amazon, and not just in the tech sector.
“Of course other technology stocks impact the price of Amazon, but there are also a number of other markets that the platform has found are correlated,” said Lane Mendelsohn, vice president of VantagePoint. “That’s not a surprise with a company as large as Amazon, but you wouldn’t assume that a company like Intuitive Surgical for example is related.
Here’s the full list of related markets to Amazon.
Unlike Facebook and Amazon, Apple Inc. (NASDAQ: AAPL) explosion to the upside appears to have been entirely earnings driven.
The blue predicted moving average on the 1-month chart below only forecasts the stock two days in advance, rather than three. But you can see a clear crossover to the upside on May 1, the day Apple reported a strong quarter. Seeing a theme here?
While the first three FAANG stocks appear to be either in a strong directional trend or clearly moving into one, Netflix, Inc. (NASDAQ: NFLX) looks like it’s in a period of quiet consolidation after rising 50 percent in the first four months of the year.
In this case, the narrowness of the gap between the predicted moving average and 10-day moving average tells us the market isn’t feeling particularly convicted one way or the other right now on the stock. This may be one to watch closely to see if it breaks upward or downward.
Compared to its peers, Google parent company Alphabet Inc. (NASDAQ: GOOGL) actually looks weak in the near-term. All three of VantagePoint’s predicted moving averages (the 1-day, 2-day, and 3-day) show the stock in a clear downtrend. Here’s 3-day predictiction.
From the looks of it, the two lines on the chart have diverged in the last week, indicating the current trend has some legs to it.
Even though the red-green bar at the bottom of the chart—a predicted Neural Index that forecasts strength and weakness for the next trading day—shows green, the stock appears primed for more downside.
Unlike the last couple of years, it no longer appears that the FAANG stocks are driving the market. But they still make up about 14 percent of the S&P 500. That’s a significant percentage for just five companies, and it tells us that these stocks will continue to be impacted as much by macro factors as micro factors. That’s part of what makes them so compelling for traders and investors.
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