Key levels for the FAANG stocks

A number of my conversations this week The last bar addressed the challenges of close leadership. Joe Rabil pointed this out weakness in small caps, and Jeff Huge focused on the difference between that YTD returns of FAANG stocks to pretty much everything else.

Why is tight leadership such a problem?

In the end, it’s all about broad participation and whether the “infantry” (mid-cap and small-cap stocks) follow the “generals” (mega-cap and large-cap names). During healthy bull market periods, the average stock performs pretty well because “a rising tide lifts all boats.”

We shared a video earlier this week outlining that Problems with narrow market leadership and what we would need to see to make the outlook for risk assets more optimistic. Today, we’ll be taking a look at the five FAANG stocks one-by-one, focusing on key levels to watch that would signal potential fresh downside for our key benchmarks.

The strong ones: META and AAPL

Looking at the five stocks in question, I’m immediately drawn to the two with the most encouraging trends in 2023.

For starters, META has more than doubled since its November low and made yet another new yearly high this week.

If you draw a trendline starting at the November low, you will see that the pace of this uptrend has been remarkably steady. The stock remains above two upside sloping moving averages and the recent breakout above $200 was just the latest in a series of confirmatory bullish moves.

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A chart like this offers a fairly simple game plan in my opinion because as long as the price stays above this trendline the uptrend is intact. When the purple trendline breaks, it alerts us to a possible “character change” on the chart.

The Apple (AAPL) chart looks similar, with the ultimate low here being right at the beginning of 2023.

Here we can see that the trendline connecting the recent lows is also showing a consistent uptrend that can provide a very clear sell signal when this trendline is broken.

The problem with the AAPL chart is that it is approaching a major resistance level in the $175-$180 range. At this level, the stock first peaked in December 2021, and subsequent peaks in January 2022, February 2022, March 2022, and August 2022 were around the same level.

If Apple is able to not only trade against the resistance, but surpass it and scale above the key $180 level, then it would make an incredibly strong case for a sustained bullish phase for our key stock benchmarks. However, the fact that this level has been tested numerous times already tells me to be cautious if AAPL tries to break out again.

The questionable: GOOGL & NFLX

In terms of actionable signals this week, Alphabet (GOOGL) ended the week above its February high of around $108. If we see more episodes after the bank holiday weekend, it could be another bullish sign for our stock indices.

I will label this chart “questionable” because I would argue that there is still a lot to prove here. Note that the February high was an unsuccessful attempt to break the 200-day moving average. In March, the price finally broke above the 200-day mark and then retested this moving average from above.

So, just below the current level, we have a confluence of support based on the 200-day moving average, the recent swing low in late March, and a “big round number” of $100 that often serves as support. If GOOGL falls below $100, it would raise a serious red flag given the lack of upward movement.

Netflix (NFLX) has a fairly constructive chart as it is currently above its 200-day moving average, but is in danger of confirming a lower high as it declined in the second half of this week.

NFLX has one of the strongest performing runs from May 2022 to February 2023, but unfortunately the stock kind of faltered in February and March. This week’s high was around $350, well below the February high of $375.

One of two things will happen on this chart once the current period of consolidation is complete. A break to a new swing high around $375 would confirm a new bullish phase for this stock. On the other hand, if the NFLX dips below its March low of around $280 followed by a break below the 200-day moving average, it would provide a key bearish signal for a crucial mega-cap stock.

The ugly: AMZN

Now we come to what I think is clearly the weakest chart of the five. Why can I say that with confidence? Because it is the only one of the five currently below its 200-day moving average.

Look at the number of times AMZN has attempted to get back past its 200 days after the first collapse in January 2022. The February rally was just the latest attempt to outperform this classic long-term trend barometer.

The bullish case for Amazon would be based on the higher March low around $90. But what would actually make this chart go from bearish to bullish? I would argue that the primary trend remains down until AMZN can clear the February high, which would take the stock well above its own 200-day moving average.

The main charts I analyze on a daily basis are the weekly and daily charts of the S&P 500 Index. After that, I look at literally hundreds of individual stock charts every day. By focusing on the key levels of interest in these five charts, you monitor the top stocks with the greatest ability to make a meaningful impact on the broader stock indices.

Want to walk through these charts in an immersive video experience? Just go to my youtube channel!

RR#6,

David

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David Keller, CMT

chief market strategist

StockCharts.com

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation or without consulting a financial professional.

At the time of publication, the author has no position in the securities mentioned. All opinions expressed herein are solely those of the author and in no way represent the views or opinions of any other person or entity.