There are only 6 stocks that make up for 98% of the S&P 500 Indexes advance from its July low point, according to Bloomberg. You heard me correctly, 98%!
Those six stocks are Facebook (FB 184,17 -1,52 -0,82%), Amazon (AMZN 1.864,27 +16,52 +0,89%), Apple (AAPL 207,23 -1,84 -0,88%), Netflix (NFLX 347,61 -4,22 -1,20%), Google (Unfortunately, we could not get stock quote GOOG this time.) and Microsoft (MSFT 108,88 +0,75 +0,69%). For our purposes, lets refer to them as FAANG + M.
This begs for 2 questions to be answered
Is FAANG+M’s strength covering up other market weaknesses?
Is FAANG+M leadership bearish for stocks?
The S&P 500 consists of 500 companies, and if 98% of S&P 500’s gains come from only six corporations, the remaining 2% comes from the 494 other companies. That shows that 494 companies are basically flat. Can that be good news for the market?
To test the “market flat” theory, lets look at the big picture and look to the NY Composite Index, which includes around 2,000 stocks. When seeing things through this lens the influence of FAANG+M is diluted considerably.
The NY Composite is lagging behind the S&P 500, and remains 5% beneath its January high.
FAANGS have outperformed the S&P 500 and Nasdaq for nearly 10 years now. This hasn’t been detrimental to the market yet, but based on the NYC a/d line, it suggest it will continue on in this manner for a while longer.
The NY Composite’s advance/decline ratio is currently at 1.13. Such low readings have been seen before when stocks are at the bottom of their summary range.
What is my purpose in delving into these conflicting indicators?
Knowledge is key to making big moves in the stock market. If indicators are in conflict, investors have the ability to adjust their portfolios and strategies instead of moving forward blindly following a pundit that could take just one indicator out of context.
An interpretation of the above indicators could be that a there is potential short-term weakness, but at the same time long-term strength.
The latest S&P 500 Index update seems to show a daunting resistance cluster, which raises the concern,: is it now or never for stock market bears?
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