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OPINION

US 'FANGS'

US 'FANGS'
February 4, 2016
US 'FANGS'

Recently an excitable American business TV presenter caught my attention - although normally I try to block out this sort of noise. He stated that investors just "can't resist" and "must own" these "high-octane momentum stocks". My first reaction was, really? And then I thought, why? So I did what I always do in these situations and went straight to my charts. Often it's a real treat taking a dispassionate look at something for the very first time; one's ideas are fresh and unbiased.

Amazon is the only one of this group that has posted a new record high this month, living up to its stature and its name. For this reason I have replaced it with Apple, whose share price action more accurately mirrors that of the other three. A cardinal rule in technical analysis is that related instruments, as well as indices, must confirm each other.

Facebook has rallied neatly in July from first trend line support and the 50 per cent (from this year's low) retracement support level. All aspects of the chart are currently bullish. The shame is that we continue to trade below January's massive spike high and therefore it can hardly be said, six-plus months down the line, to be strongly bullish. Better than many, that's all.

 

 

Apple is a lot more worrying, having peaked at the beginning of last year with a head-and-shoulders top. Measured downside targets were met comfortably and this year's price action might be another right shoulder of a similar topping pattern at a higher degree. The concept is one of fractals, where price action and wave counts are replicas of themselves but in a greater or smaller size. Mr Buffett might be keen on this stock, but I'm not so sure. A lot cheaper than it was, that's for sure.

 

 

Netflix also peaked last year in a slightly irregular double top around $130. Interim swings while making this pattern have been extreme, losing about 33 per cent of face value along the way. Settling into triangle consolidation since February, it looks and feels as though it's happier at current prices than at the highs and, as we are closer to the bottom edge of the pattern, the risk of a break lower is higher than one above its upper edge. Momentum is rubbish.

 

 

Google as I still call it (because its new name reminds me of Alphabetti Spaghetti which I hated as a child) has an especially tricky and rare chart pattern: a diamond top. Very hard to work with; difficult to predict; often hard to spot at all. Weekly moves on the way down are big (see the drop from the record high), denoting instability as it approached the psychological $800 area. During July it clambered up off Fibonacci 38 per cent retracement support and has now recovered half of the decline from peak - and is therefore very much in correction mode rather than anything truly bullish. This is not a 'diamond geezer'.