Hi and welcome back to FAANG FRIDAY. I am sorry that we missed last week’s edition, but unfortunately, we had a basement flood and we had to deal with the uproar and problems that that entailed. It could not have come at a worse time because everything that I had been leading up to in our FAANG FRIDAY webcasts got washed away in a sea of red ink in the stock market and we did not capture it in real time. However, let’s make up for that – at least in part – by showing what we missed last week and what went on from last Friday to this one.
The first thing that I really wished to point out was that the stock market – as epitomized by the S&P 500 – fell down to its Mid Growth Price (2½ times book value for that Index) which had by last week risen to 2723, up from the 2650 previously. This is because of the flood of new balance sheets that came in which changed the book value numbers and did so fairly significantly. The actual low was 2719, about as perfect a time for a reversal as could be imagined. This was, however, not the first time since 1993 when we started our SVA service that such accuracy has occurred!
At that point, the market held – and bounced, as we would expect, as had occurred in the setback in 2000-2. However, overriding everything was an entirely new dynamic. First, there was the advent of the COVID-19 virus which has threatened to shut down much of the Northern hemisphere, and actually has done so with signal success! The second blow, however, came from the Saudis, who managed to pick the perfect time to crush oil prices and really disrupt the energy business. To what end, we have yet to ascertain but that sure helped to put a spanner in the way of allowing markets to find their feet after the decline from the 3300 level to 2723, already a 17½ % decline.
On Monday, the markets cheerfully broke down through that support level and after a nasty smash, has been biding its time as we await further developments. Fundamentally, however, the failure of the Mid Growth Price to hold should – if 2000-2 is any indication – be a precursor to a drop to the Growth (G) Price, which currently stands at 2175, a further 20% decline from the MG Price.
Turning to the specific FAANGS, I will start with Amazon (AMZN) as usual (the 6-month chart). As I have repeatedly stated, we still do not have the year-end financial statements so I remain unsure whether or not that breakout at the beginning of the year is “real” or not. If it was, it was short-lived and the stock, for lack of an updated target, is heading for its HB2 Price (or 12 times book).
Facebook (FB) – also the 6-month chart – had been riding its MSG Price (5.5 times book), but gapped down and just kept on going to its LSG Price (4.5 times book) and even here is having its share of trouble just trying to hold on. I frankly expect that the SG Price (3.5 times book) will transpire. This is a very significant “price” in the mathematics of SVA and should provide a really excellent trading opportunity!
Alphabet (GOOG) – the 6-month chart – did what we expect that all good little stocks should do at technical breakpoints when they break down. The stocks fell below, then rallied back to, the breakpoint and then continued its trek to more southern climes. I do (now) expect that the SG price will come into play, as when we look at the stock on a 10-year basis, that is the sort of fulcrum (mid-point) trading level.
Apple (AAPL) – 2 month chart – did the same thing. That is, it broke support sharply, then rallied back to it, before continuing on its way down.
Netflix (NFLX) – 6 month chart – after a promising breakout over the HB3 Price (16 times book) has fallen back to it, regardless of how many folks are confined to barracks during the COVID crisis. It, too has broken support, but it is too early to tell if it will emulate AAPL and GOOG in a breakdown-retest move as that break has just occurred.
I will have to say the same thing about both Nvidia (NVDA) and Microsoft (MSFT) as they, too have just broken support but have yet to show their true technical colours.
Overall, then, AMZN is oozing lower, while FB has made a clean break down. GOOG and AAPL have done the proper technical “thing” and have tested their breakdown level before heading lower, while NFLX, NVDA, and MSFT are just beginning that process. Overall, of course, I would have to say that the charts are promising but not in a nice way. The FAANG stocks are all pointing lower. I would anticipate that they will more or less meet their downside targets at the same time that the S&P finds its Growth (G) Price, where – hopefully – some of the carnage will end and the market will attempt to find its footing. No promises, naturally, but I would hate to contemplate what it would mean if that level does not hold. More on that on another day, if push comes to shove in the weeks (or days?) ahead.
Let me leave you with a final thought and a final stock.
In a bull market, as an investment service, it is difficult to really stand out from the welter of Buy recommendations as everything is going up. It is in bear markets, however, that investors really need guidance. I would guess that for most of our audience, our fee of $200 a month for our service sounds a bit expensive. But that $2,400 a year (all tax-deductible) is small potatoes compared to what the majority of people lose in a single holding in their portfolio! This is why we have so many clients that have been with us for decades. SVA is cheap insurance when the going gets rough.
But let me show you the real power of the SVA service. Here is Fedex (FDX), a stock which one of our viewers asked me about a little whole ago, but at the time, I had too much else to cover. I apologize to that viewer because of what I will show you next.
Let’s look at the 1-year chart of FDX. You can see that the stock kind of dithered about at its Growth (G) Price for quite a long time before plunging very recently. How would one of our clients have known what to do with the stock – buy, hold, or bail out?
Well, the answer lies in the long term (35-year) picture of this stock.
Never mind the welter of information on this chart: it is not important, because what you really need to know is the overriding tendency – the pattern – of this stock. As you can see when you squint at it, FDX has shown a clear pattern of peaking precisely at its SG Price – and of course did so in 2018 – and then it fell to its G Price – where it dithered (as I said) until very recently. The long view of trading history tells us, however, that the G Price is very rarely very significant in defining the low for the stock, and it usually bottoms at its HC Price (1.5 times book) or – more often, much lower. With that in mind, none of our clients were remotely tempted to buy into the stock.
We have warned our clients about the risks in the market. Our February market letter was titled Look Out Below, a timely warning as things turned out.
Anyway, with apologies for this format this week. We, too, are working from home and have yet to iron out our communication issues in the FAANG FRIDAY setting. I am trusting, therefore, that hopefully I will SEE you next week, and if not, at least we will have a live audio webcast.
Have a good week.