What’s Next for FAANG Stocks?

What’s Next for FAANG Stocks?

Posted On December 16, 2020 3:40 pm

Big cap tech stocks, especially those comprising FAANG — Facebook (FB) Amazon (AMZN) Apple (AAPL), Microsoft (MSFT) Netflix (NFLX), and Alphabet (GOOGL) — had been carrying the major indices for a majority of the past two years.  Bears like to point out that those five stocks accounted for 20%-plus of the SPDR 500 (SPY), and a full 50% of the Nasdaq 100 (QQQ). Additionally, this heavy weighting and their outperformance contributed to nearly 75% of the SPY and QQQ gains during the 18-month period from January 2019 to July 2020. 

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But, there’s been a notable rotation over the past few months with investors anticipating a covid-19 vaccine and the economy reopening with small caps, value, and cyclicals notably surging ahead while FAANG has gone nowhere. 

As you can see, the FAANG no longer carries the SPY higher.  It now seems poised at a crucial juncture, either to break down further or reassert their leadership. 

faang spy chart 2018 t0 2018

As we drill down further, you can see their September peak and decrease over the past three months. I threw in Tesla (TSLA) to illustrate just how monstrous it’s been. I bet the S&P committee wishes they had added it in April when it initially qualified to be included in the index. 

faang stock performance september 2020

While it’s very healthy for the market to experience a broadening of breadth, the mega-cap resolution out of these consolidations is going to weigh heavily in determining the direction of the next major SPY and QQQ index moves.

Presently, it seems like FAANG will resume its leadership. Check out these converging trend lines defining the series of lower highs and higher lows in the market’s biggest names.  Note: All have posted decent gains over the past two days and appear poised for a new bull leg higher. 

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faang stock activity chart

The Options360 service is currently long AAPL, has an iron condor with a bullish bias in FB, and I’m looking at adding MSFT.  As each of these stocks’ stages a breakout, they’ll be added to the overall bull case, and be another dagger for the permabear crew. 

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.