3 major growth stocks test gap support | a cautious investor

After a noticeably strong January, November and December with strong market action, February felt noticeably different. However, the broader picture is clearly less bullish than it would have been at the end of 2023, with the Hindenburg Omen announcing the potential end of its bullish phase.Growth leadership names remained fairly strong overall. The NYFANG+ index of major growth stocks is up about 12% year to date, while the S&P 500 and Nasdaq 100 are up just 5%.

This chart highlights the “performance gap” between mega-growth companies and basically everyone else. But while stocks like NVDA are making headlines for their relentless upward trend and new all-time highs, it may be more important here to watch for names that have recently broken higher. In a bull market, there tends to be a surge of breakthroughs as leading stocks hit new highs. However, as the bull phase ends, we often see signs of buyer fatigue. Anecdotally, the last buyer made the final purchase.

I think the three most important growth stocks to watch here are Metaplatform (META), Amazon.com (AMZN), and Netflix (NFLX). Let’s examine these stocks together to see the similarities between all three over the past two years.

META rose to around $325 in July 2023 and then spent the next three to four months testing the same resistance level. AMZN experienced a very similar pattern, reaching a high in August 2023 at around $143. In the case of NFLX, after hitting a high in June, it failed to break the $450 level in July.

All three of these names experienced breakouts above their “pivot points” in November and December, and all three broke higher in their first quarter earnings reports from mid-January to early February. But something interesting has happened since the gap widened further a few weeks ago.

Notice that all three are essentially range-bound after the spacing goes higher. All three names attempted to break out of the initial range established after the price gap, and all three failed to break out of the range. Netflix ended the week with a Dark Cloud Cover candle pattern. The day ended below the midpoint of the first day, with big gains followed by big declines.

I have found that the period immediately following a price gap is very important in assessing investor sentiment. If a stock gapes higher and then trades higher, this indicates that additional buyers are coming in and are willing to pay more for the same stock. If the stock is trading lower after the price gap, this suggests profit taking, with early investors happy to take advantage.

However, these three charts are stagnant, with no clear upward trend confirmed and gap support not broken down so far. I have set price alerts at the top of recent price gaps for each of these three names. That’s because I think it represents a “line in the sand” not just for these three growth stocks, but perhaps for the broader market. entire.

At this point in the election year, seasonal weakness is undeniable. February through March tends to be a weak period of the year, and worsening width conditions appear to be consistent with this traditional calendar phenomenon. But what will matter most to the market will be the ability of these three big growth companies and whether they can maintain their recent price gap. And if this price gap isn’t maintained, growth-oriented benchmarks could really start to feel the pain.

RR#6,

dave

P.s Are you ready to upgrade your investment process? Check out our free behavioral investing course!

David Keller, CMT

Chief Market Strategist

StockCharts.com

disclaimer: This blog is for educational purposes only and should not be construed as financial advice. You should not use any of our ideas and strategies without first evaluating your personal and financial situation or consulting a financial professional.

The author had no positions in any securities mentioned at the time of publication. All opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.