Editor's note: Our offices will be closed on Monday in observance of Presidents' Day. Look for the next edition of DailyWealth on Tuesday after the Weekend Edition. And enjoy the holiday!
They provide some of the most widely used products and services in the world...
They have an oversized influence on the stock market...
And whether you're an active trader or a passive investor, you likely own at least one of them.
We're talking about the "FAAAM" stocks.
Wait – don't you mean the "FAANG" stocks?
Well, yes and no...
The "FAANG" stocks are Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Google (GOOG, GOOGL).
That acronym is years old. The actual name for Google's parent company is now Alphabet (hence the extra "A" in our new, modified acronym).
And Netflix – the $167 billion video-streaming company – is no longer the dominant force that it once was. Competition has picked up. It hasn't had a single quarter with positive free cash flow since 2014. And its market movements aren't watched as widely anymore.
Software giant Microsoft (MSFT), on the other hand, has risen back to glory. And with a $1.4 trillion market value, it's now the largest publicly traded company in the U.S.
So today, we're checking in on the FAAAM stocks... for one key reason.
These businesses dominate their industries. Four of the five have a market value of more than $1 trillion. And when their stocks move, the markets move.
As long as these five stocks are performing well, the broad stock market indexes will likely be strong, too. And as we'll show you today, the FAAAM stocks are crushing it...
Understanding trends can dramatically improve your results in the markets. When an asset establishes a trend – either rising or falling – it tends to keep moving in that same direction.
For the FAAAM stocks, we'll look at the long-term trends – the 200-day moving averages (200-DMAs)...
The 200-DMA is simply the average of an asset's closing prices for the prior 200 trading days (about 10 months). You need to know two main things when looking at this...
- The first is that during bull markets, assets tend to spend most of their time above the 200-DMA. During bear markets, they spend most of their time below it.
- The second thing is even more important... The 200-DMA itself is the long-term trend. And it acts like a magnet. Whether it's moving higher or lower, assets tend to have a hard time going in the opposite direction for long.
We use an asset's 200-DMA to help form our outlook for the next several months to several years. With that in mind, let's start by looking at social media firm Facebook...
In the chart below, you can see that Facebook bottomed in December 2018 just above $124 per share. At their lows, shares were trading about 27% below their 200-DMA. The stock was overstretched to the downside...
Over the next month, the rubber band "snapped back." And since last March, shares have mostly held above their 200-DMA. Take a look...
Facebook had only a minor dip in its uptrend. And the stock trades above its rising 200-DMA. That's a positive sign, both for the stock and for the market.
Next up is the $1.4 trillion consumer-electronics giant Apple...
Apple has been on a tear lately. Shares trade well above their rising 200-DMA. But this isn't cause for concern... In short, when Apple is very extended above its 200-DMA, you want to buy.
We ran a historical study on this in December. To give you just a few highlights... six, nine, and 12 months after major extended levels, returns were positive 88%, 100%, and 96% of the time, respectively. And the median returns were 27%, 37%, and 63%.
As you can see below, shares jumped above their 200-DMA in June. Since then, they have soared. Apple is up 16% since our study... and up 130% from its January 2019 low...
Apple's long-term uptrend is strong. And as the second-largest company in the U.S. market, this is a big check mark for the bulls.
Next, let's look at $1.1 trillion online-retail and web-services behemoth Amazon...
As you can see below, Amazon traded close to its 200-DMA for most of the past 16 months before spiking higher. Now, Amazon trades at an all-time high. And on Wednesday, shares closed about 17% above their 200-DMA...
Amazon looks great. Many trend-following traders have likely jumped back into its shares with the recent rally. Amazon is also one of the largest companies in the U.S. So this is another check mark for the bulls.
Now, let's look at $1 trillion web-based consumer-services dominator Alphabet...
In the chart below, you can see that Alphabet most recently crossed above its 200-DMA in July. Since then, it has been in a steady uptrend. And on Wednesday, it closed at a new all-time high...
Alphabet's market value and influence on the indexes is right up there with Amazon's. So again, this is a big, bullish sign for the market.
Finally, we have the $1.4 trillion software giant Microsoft (MSFT)...
In the chart below, you can see that Microsoft is "leading the pack." Shares are up 74% over the past year. And they're up 107% over the past two years. Right now, Microsoft trades 29% above its rising 200-DMA...
Microsoft is one of the strongest stocks in the market. Its shares are up about 10% in the past two weeks alone. This is another huge positive signal for the market.
Giant gains in the market's largest, most watched, and most influential stocks tell us this bull market is still going strong.
We can't say that a sharp pullback is out of the question. It isn't. In fact, we fully expect to see a pullback of at least 8% to 10% within the next few months.
As our friend and colleague Steve Sjuggerud points out, the market suffered five corrections in the last 12 months of the dot-com boom. That isn't unusual toward the end of a historic bull market, and it isn't a reason to worry.
Today, all five of the FAAAM stocks are trading above their 200-DMAs. The long-term trend is up... The bull market is on... And we strongly recommend you own stocks.
Good trading,
Ben Morris and Drew McConnell
Editor's note: The Melt Up charges on... But while the "FAAAM" stocks are a great way to gauge it, the biggest gains likely won't come from these market leaders. Earlier this week, Steve hosted an online event to share a new way to take advantage of the boom – with much bigger upside potential. To hear more, including Steve's latest market forecasts, check out the video replay right here.
Further Reading
"If you want to know where stocks are headed, you need to understand the trend," Chris Igou writes. With stock prices roaring back after a recent dip in the market, we expect these gains to continue in 2020... Get the full story here: Why I Expect Double-Digit Stock Returns in 2020.
"Most people know that this bull market is getting old," Vic Lederman says. With the S&P 500 soaring once again, folks assume this is a sign of the top. But history says we could easily see a much bigger boom before the end... Read more here.
How do you end up with a 709% winner? The answer is simple. But it's hard to put into practice...
FOR BARGAIN HUNTERS, THERE'S NO 'RETAIL APOCALYPSE'
Today, we're looking at a brick-and-mortar store that's surviving the "death of retail"...
Many traditional retailers are struggling to compete with e-commerce. That led the media to proclaim a "retail apocalypse" in the past decade. But as regular readers know, many stores will thrive in the Internet age... as long as they give customers a good reason to leave their homes and shop in person. Check out today's example...
Burlington Stores (BURL) is a $17 billion off-price retailer. It buys up surplus clothes, jewelry, toys, luggage, and other items, and then sells them at a discount. Burlington's inventory varies based on what's being liquidated at a given time... and that means bargain-hunting customers keep coming back to check on the newest deals. This week, BURL raised its fourth-quarter sales-growth forecast to 10.5% (about $2.2 billion), up from a range of 9% to 10%.
Over the past four years, BURL shares have skyrocketed more than 350%, and they recently hit a new all-time high. Don't let the media hype scare you – not all retail is dying...
