Last night I did a little digging and found that 19 out of the 30 Dow stocks have formed or are currently forming head-and-shoulders patterns. Remember that these Dow stocks compose not only the Dow itself, but are also large components of the S&P 500 (and some are a part of the Nasdaq). We've already seen Apple (APPL) bite the dust after its head-and-shoulders pattern, and I think that the next to go is 3M (MMM). Fundamentally, 3M is falling victim to a global slowdown in industrials -- the recent data has not been in the company's favor -- and the rising dollar. Being a multinational company based in the United States, 3M makes less money when it converts is revenues to the greenback. Thus, the company has to sell more and manage costs more effectively to meet revenue and profit expectations for the quarter. So on this front alone I wouldn't be buying 3M here. The technical side of things paints a similar picture. When the fundamentals and technicals of a stock seem to be moving in tandem, it often strengthens the underlying thesis. Above is a daily chart of 3M. (Oh, by the way: you can create charts like these by clicking the "Charting Now" tab on my page. I guarantee you that this charting software offers more features than what you're currently using).
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FANG, the acronym for Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Alphabet (GOOGL) (formerly known as Google) was the staple for comparison throughout 2015. These stocks were by far the best performers over the last year, with Netflix and Amazon the winningest of them all. If you put your money in any of these four stocks, you tremendously outperformed the overall markets. And, if you put your money in either of the middle two letters, you doubled your money -- and then some.
These gains are impressive and, on their own, are not a reason to sell. Just because a stock doubled in price over a 12 month period does not mean that it won't move higher in the next 12 months. In a turbulent market, the names that compose FANG are actually good places to be. The appeal of these companies is their growth, which can often maintain its trajectory in a lackluster economy.
However, it's possible that these names are becoming overheated. I'm seeing some action in three of the four FANG names that should get you a little concerned going forward. While I believe in each one of these companies in the long haul, I think the next fiscal year won't be so pretty. If you've enjoyed the ride higher, you may want to realize some of these gains and wait for better prices to reenter. I do think that these prices will come but, given the beta of these names and the overall market volatility of late, I would not be short any letter of FANG.
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