7 Magnificent Stocks: Overheated or Just Getting Started? | a cautious investor

One of the main, if not the main, themes of 2023 has been the dominance of mega-growth deals. Magnificent 7 stocks have easily outperformed our stock benchmarks throughout 2023, and have remained roughly the same so far in 2024.

Netflix’s (NFLX) earnings gap widening this week certainly appears to have established the stock as one of the leading stocks of the day. But what to do with a name that has already achieved tremendous success and now seems overextended?

Today I will analyze eight major growth names that I loosely refer to as the “Magnificent 7 and Friends” and use my technical analysis toolkit to gauge the strength of the trend and the prospects for a continued upward trend. We’ll also take a look at how outlier Tesla (TSLA) has fared after disappointing performance and tremendous price history.

The best of the best continues higher and higher

Over the past 12 months, the NYSE Fang Plus Index (NYSE+) is up 76%, outperforming QQQ’s +45% and SPY’s +22%. Although this index includes names other than the Magnificent 7, it still remains a decent indicator of the strength of large-cap growth trades.

The first five charts in this group are similar in that they break away from a clear underlying pattern and show a clear pattern with higher highs and higher lows. Notice how many of these names broke above resistance levels and then bounced back to previous resistance levels before accelerating to new swing highs in January.

Bullishness tends to breed more bullishness, and Charles Dow made the importance of this concept clear by declaring that an uptrend consists of a pattern of higher highs and higher lows. As long as this chart makes a higher swing on subsequent drops, the main trend will remain strong.

Netflix is ​​a bit unusual this week in that it maintained range limits (similar to Apple below) until earnings were higher.

This week’s gap in gains pushed NFLX above key resistance around $500 and also created a new expected support area between $500 and $530. As long as NFLX maintains this range to the downside, I think overall sentiment will remain bullish.

A name that still has something left to prove

This is where the chart starts to look a little different than the other charts we’ve shared so far. The first six names have already hit new highs, but Apple (AAPL) continues to fall below firm resistance levels.

Apple hit a new 52-week high of around $197 in July 2023. This level was briefly broken in December, but this uptrend could not be sustained as the stock fell to test the 200-day moving average. This week, AAPL once again tested the $197 level, but failed to cross this upside threshold. If AAPL can get above $197, and especially the “big round number” of $200, I would consider it a bullish breakout, consistent with the previous charts presented here.

The worst of the worst has fallen

And now we get to the names that we believe no longer deserve membership in the elite Magnificent 7 club. If you review the chart below and compare it to all the other charts we’ve shared, you can see how much of an outlier Tesla is.

A quick glance at the chart shows a similar structure to AAPL through the summer of 2023, as TSLA was able to reach a $300 market in July. But from that point on, you can see a clear pattern of lower highs and lower lows. This is a downtrend in Dow theory, indicating a major bearish trend and general risk aversion.

This week, TSLA’s stock price fell due to poor performance, with the stock down nearly 14% for the week and the price falling below its October 2023 low of around $190. Unless TSLA reclaims this level on a higher swing and then sets a higher low, the underlying trend will continue to fall and we will be very happy to find better opportunities elsewhere!

Which of the Magnificent 7 (or 8?) stocks do you think is the best opportunity here? And why? Using simple trend analysis on these names, it can be very easy to cut out outliers, focus on actionable moves, and better define potential rewards and risks.

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 written 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.