Will FANG Stocks Take A Bite Out Of The Stock Market?

The stock market survived another week of earnings though most of the averages closed lower on Friday. Comments from Fed Chair Powell on Friday indicated that elevated inflation is “likely to last longer than previously expected”. It was the third week in a row of solid gains for both the S&P 500 and Dow Jones Industrials which set both intra-day and closing record highs. This action confirmed last week’s view that the correction was over.

The increased focus on supply chain issues helped boost the Dow Jones Transportation Average to a 3.8% gain for the week. The Transports were led by trucking and railroad stocks that were up 5.9% and 4.6% respectively.

The Dow Jones Utility Average was strong showing an increase of 2.6% followed by a 1.6% gain in the S&P 500. The SPDR Gold Shares also finished the week higher, up 1.5% and just barely outperforming the Nasdaq 100.

The positive close for all the markets in the weekly market summary above was consistent with the latest results of the American Association of Individual Investors (AAII) survey as the bullish % rose to 47.9% from the prior week’s reading of 37.9%. As noted previously, it had dropped to 22.4% on September 15^th, which is a level often associated with correction lows, line c. The sharp reading last week reversed the downtrend in sentiment, line b.

The weekly chart of the S&P 500 reveals the impressive rally from the low three weeks ago at 4278. This corresponded nicely with the yearly R1 pivot level and the weekly starc band analysis. The R2 is at 4804 and the yearly pivot analysis was discussed earlier this year.

The weekly S&P 500 Advance/Decline Line made a new high last week which confirmed the price action. The A/D line analysis stayed positive during the market’s pullback as it held well above its rising EMA and the much stronger support at line a.    

There were no major surprises from the economic data last week as key reports like the Leading Economic Indicators and Philadelphia Fed Manufacturing Index were slightly lower than expected but were still clearly positive.

So, what could make investors question their new bullishness?

There was one major surprise from the tech sector last week as Snap, Inc. (SNAP) predicted a weaker sales outlook based on the new privacy changes from Apple’s iOS software as well as supply chain challenges. Even though sales rose 57%, SNAP missed analyst estimates and the stock was down 28.7% for the week on the highest volume of the year.

On a short-term basis the stock market is extended on the upside and the main concern for the week ahead is likely to be the upcoming earnings reports for…