Mean reversions nearing the end

The big mean reversion back to the 200 week moving average has been underway.

While somewhat ‘smaller’ growth stocks did it much earlier and sharply, I have been highlighting the FAANNGM stocks as the ones to watch due to their hugh weighting and skew in the S&P 500 and Nasdaq indices.

The FAANNGM acronym accounts for the companies Facebook, Amazon, Apple, Netflix, Nvidia, Google and Microsoft.

I also included Tesla in some of my commentary due to its $1.4 trillion market capitalisation also adding to this concentration at the top.

This week, Google (Alphabet) traded back down to its 200 week moving average.

Microsoft is nearly there.

Amazon and Nvidia did it several weeks ago.

Netflix and Facebook (Meta) plunged through that level many months ago.

But Apple and Tesla haven’t done so.

While there isn’t a rule that suggests they need to fall all the way to their mean but the stretched levels which they were trading at told me to either sell or not chase them higher…..because gravity does exist.

Incidentally, the Nasdaq 100, the Philadelphia Semiconductor and S&P 500 indices also reverted back to its 200 week moving average  (WMA) over the past month, as have the Small-Cap, Mid-Caps, Banking, Transportation indices. 

We have seen all the ‘rubbish’ or over priced and zealous technology stocks tank first, followed by many other sectors including the industrials, then notable indices caught up with the decline and the last to follow are the originally identified culprits, being the FAANNGM stocks.

Pundits are all waiting for some indication of a market capitulation.

Could that occur when Apple and Tesla reach their 200 week moving average?

That may only matter if you are owning or trading Apple or Tesla.

Many indices are at higher prices today than when they touched their 200 WMA back in June or September 2022.

This story had a lead up which I began writing about in 2021.  

3 days before the S&P 500 peak, I wrote this note which highlighted the extreme percentages that the indices and in particular the FAANNGM stocks were trading at.

In the next newsletter, I illustrated the damage already being done (at that time) amongst the lesser technology starlets and warned of that spreading to the bigger boys. 

This article from January 2022 discussed how recently stratospheric FAANNGM stocks where looking weak and about to break below important support lines.

This article written days later in February 2022, reiterates the story about the 200 week moving average being something to watch in the pending reversion to the mean.

Now that these mean reversions have occurred or are close to doing so, it doesn’t automatically render them a Buy suggestion.

There is more analysis to be done and basis required for such a recommendation

Clients will soon receive commentary with my views about what to consider next. 

October 28, 2022

by Rob Zdravevski

TSLA is nearing my downside target

This is a story of knowing when not to chase something.

It is a message about being careful amidst hype, cult and zealousness

It’s not necessarily something I was interested in shorting.

I find shorting difficult.

I have been calling the price of Tesla lower for a good year or so.

9 months ago, I wrote (in this note), “we’ll look for a visit to $650, then $567 while $519 would represent a good shake-out.”

That was the pricing of Tesla stock before the 3 for 1 stock split.In today’s after-market action, following its latest quarterly release sees TSLA shares trading at $208 (or $624 in pre-split prices)
The 200 week moving average which I continue to reference in stories I tell, sits at $157.That mean should rol up to the $161 region in the next few weeks.$161 is equal to $483.
Which meets and is a little lower than that pre-split target of $519.

8 months earlier, I wrote this note. My timing was off.

3 months ago, this was posted.

October 22, 2022

by Rob Zdravevski

Equity indices will fall further because of the distorting few

While I see rotation in amongst sectors and various buying opportunities in equity markets appear, Tesla is not one of them.

Further risk and declines in Tesla’s stock price and a few other stocks which have distorted indices are the reasons why ‘the market’ could fall further.

Within this ‘market’, continue to pick out the stocks which are cheaper and ripe for some (stock)picking.

February 21, 2022

by Rob Zdravevski

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