As we discussed this morning in the Morning Lineup, news out of China sent US-listed Chinese stocks plummeting. While this may seem like a concentrated problem, this weak performance actually has interesting implications for a measure of mega-cap stocks. More Over the past few years, the NYSE FAANG+ Index has been a well-watched measure of mega caps and two members of this index are two of the largest Chinese stocks: Alibaba (BABA) and Baidu (BIDU). Given that the index is equally weighted, the more than 14% declines in both stocks today don’t weigh too heavily on the index, but we do note that their performance drastically alters what would otherwise be a somewhat chart. optimistic.
Below we show the NYSE FAANG index as normal and without these Chinese stocks over the past year, both pegged at 100 a year ago. The original index (red line) remains firmly in its downtrend over the long term and since the summer. However, when BIDU and BABA are removed (blue line), this summer downtrend has definitely been interrupted. That’s not to say that mega-caps have completely reversed the situation in the long run, but the short-term chart for FAANG shares might be more positive than at face value.
As for individual FAANG stock charts, Microsoft (MSFT) and Apple (AAPL), which as we discussed in the Card of the day, due to report on Tuesday and Thursday, respectively, began to break out of their summer/fall downtrends. While this is a positive development, at least in the short term, there is still resistance ahead at the moving averages of each stock. With potential earnings catalysts later this week, we should have a better idea of whether or not these breakouts are fakes or the start of something more material.
While these mega-cap moves showed some promise, Amazon (AMZN) met the opposite fate. AMZN also attempted to break out of the recent month-long downtrend over the past few days, but today it encountered resistance.
As for another FAANG member who has already reported, recent chart developments from Netflix (NFLX) have been even more constructive. After a double-digit percentage jump in response to stronger-than-expected subscriber growth last week, NFLX has topped its 50 and 200 DMA and is now closing the huge gap from its April earnings report when it went down 35% in just one day. Of course, there is still a long way to go to erase the massive declines of the past year, but the uptick in results this season has been a welcome relief.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.