There are 4 stocks, collectively referred to as the “FANG” stocks, Facebook, Amazon, Netflix and Google, that have been the most powerful issues driving the stock markets higher over the past few years.
As we’ve noted a number of times over the year, while the markets have been able to drive higher, there are warning signs that exist which gives us pause to be all out bullish on the current trend. Facebook and Amazon are two of the glamour engines driving the market indices higher. Over the past months, even as prices on these issues push higher, the momentum histogram which we use shows a divergence from the advance. This is not the case with either Google (Alphabet) or Netflix.
While we would not use this indicator alone as a basis for trade, it does give concern if/when other indicators begin to show deterioration. If leading stocks begin to falter, the prudent course of action is to tighten stops and be less aggressive on buying pullbacks or chasing breakouts. We’ll keep an eye on this group.