What FAAAMs are telling us now

You have certainly heard about FAANGs by now, which is the acronym for FB, AAPL, AMZN, NFLX, and GOOG. How about FAAAMs? Well, it is virtually the same but I replace NFLX with MSFT and GOOG is now Alphabet as the company name. This change is important as NFLX is falling fast and I don't think it will ever rise again to its previous glory. On the other hand, MSFT is rising fast and is become the leading tech stock with the biggest market cap now. With these new five stocks, they represent about 40% of all the tech stock market cap in S&P, believe or not. As such, the overall market is basically driven by these five stocks. If they are doing well, so goes with the whole market. If they get a hiccup, the whole market will be shaking as well. Here is the 2018 analysis how FANNGs may impact on the overall market performance, up to nearly 100%!!.

So it is important to check the health status of these stocks. One way of checking their status is to see if they are solidly in a long term uptrend by using their 200 DMA, which is widely used as a general trend indicator. If staying above, the stock is moving up as a long term trend (in months at least) and vice versa.  Here is the status of their prices vs their 200 DMA.

·       All the five FAAAMs are staying solidly above their respective 200 DMA at the moment.

·       Except FB which is checking back towards its 200 DMA, all the other four are quite stretched far away from their 200 DMA (I just show you the AAPL chart below but the other 3 are quite similar). The distance from the 200 DMA is generally 30% or more, indicating some extreme stretches.

So what this observation tells us? On the one hand, the FAAAMs are in a healthy uptrend and there is no indication to suggest this strong trend is ending soon. So this is great news for the whole market and at least we can be sure that the stock market is still the place to make some money in the foreseeable future. I don't expect we are on the verge of a huge crash to derail the 11 years bull market any time soon. Not at all and this bull run still have room to run further. Having said that, it is very rare to see any stock to stay too much above its 200 DMA for too long. Usually 10% is already quite excessive, let alone 30% or more. When a stock is in such kind a stretch, a quick check back to return to the mean is not far away. So to say in plain English, the FAAAMs are very much at risk of some sharp move to the downside. Even a 10% move down is still very much within the normal fluctuation for them. If this is indeed the case, what will happen to the whole market when it is 40% driven by the FAAAMs? I guess you don't need to be a PhD to tell the implication of such kind of FAAAM downward moves, right?!