S&P 500: Two Steps Forward, One Step Back

The weather isn’t the only thing taking a turn for the worse as summer winds to a close; the so-called FANG stocks (Facebook, Amazon, Netflix, and Google/Alphabet) that led the US stock market as a whole higher throughout the summer have also been backsliding.

All four stocks saw a big dump yesterday, spurred by concerns over privacy as Facebook COO Sheryl Sandberg testified to Congress, and those losses have carried over into today’s trade, with FB, AMZN and GOOG all shedding more than 2% (NFLX is in positive territory so far today after losing more than 5% yesterday). From a classic technical analysis perspective, underperformance amongst the “generals” that led the charge higher off the April lows is a potential warning sign that the rally could be tiring, though we’re hesitant to draw too strong of a conclusion based on just one holiday-shortened week of trading.

Turning our attention to the S&P 500 chart, prices have pulled back to test a critical support level at 2873, the previous record high from January. In a healthy uptrend, this previous resistance level would be expected to provide support and set the stage for a rally on to new highs. Indeed, the price action over the last three weeks could represent a small “bullish flag” pattern which, if confirmed with a break above today’s high, would project a measured move objective up around the 3000 area.

On the other hand, a break and close below 2873 support could expose the lows from last month, and the bottom of the five-month bullish channel, around 2800 next. With the always-critical Non-Farm Payrolls report set for release tomorrow morning, it should be a very interesting close to the week for US stock traders indeed.