Netflix, Facebook, Microsoft Just Entered Buy Zones But Stocks Have Flaws: S&P 500 Futures
Futures for the S&P 500 index edged lower late Wednesday. The S&P 500 index and other major averages hit record highs during the regular session, while FANG stocks Netflix (NFLX) and Facebook (FB) broke out and Microsoft (MSFT) retook a buy point. But all have flaws to varying degrees, just as Apple (AAPL) and Intel (INTC) did in their short-lived breakouts at the end of 2017.
S&P 500 futures fell 0.1% vs. fair value. Dow and Nasdaq 100 futures lost a fraction.
X Investors need to study stock charts carefully, rather than obsess over one particular point. While virtually every breakout will have some flaw, you should insist on buying the best stocks at the right time to maximize your gains and chances of success.
Netflix rose 2% to 205.04 in Wednesday’s stock market trading, clearing a 204.48 flat-base entry. Volume rose 45% above normal, a solid gain for a big-cap breakout. Investors should look for at least a 40%-50% increase in trading activity.
The most notable flaw was that Netflix’s relative strength line did not confirm the breakout by moving to a new high as well. (The RS line tracks a stock’s performance vs. the S&P 500 index.) In fact, Netflix’s RS line, though rising in recent days, is basically where it was in late July.
When stocks gradually advance in a halting fashion, as Netflix has in recent months, the safest buying opportunity can sometimes be a high-volume rebound from the 50-day/10-week moving average. On Tuesday, Netflix did just that, soaring nearly 5% in volume that was 91% above average.
Facebook rose 1.8% to 184.67 on Wednesday, just peeking past a 184.35 entry. But trading volume was flat vs. normal. And the RS line also is lagging, more so than Netflix’s.
Facebook also retook its 50-day line on Tuesday, but volume was only slightly above normal, so it didn’t offer a buy area.
Microsoft pulled off the rare feat of moving into buy range as its RS line declined. Microsoft nudged up 0.5% for a second straight session, once again underperforming the S&P 500 and Nasdaq. Shares closed at 86.35, just above an 86.30 buy point. Volume was 4% above normal.
Microsoft initially cleared that entry on Dec. 15 in huge volume, but that was distorted by a triple-witching day that inflated market volume. Shares soon pulled back below the buy zone.
Apple is a great example of why investors should be wary of breakouts with lagging RS lines. Apple edged just above a 176.34 buy point on Dec. 18. Volume was only 8% above normal. The RS line was closer to its consolidation’s low than a new high.
Apple shares pulled back the next day and ended the year just below their 50-day line. Apple reclaimed its 50-day line on Tuesday, but in light volume, then dipped 3 cents to 172.23 on Wednesday. The RS line continues to trend lower.
Intel raced up from its 50-day line in mid-December, surging nearly 10% in four sessions in heavy volume to moved slightly past a 47.40 entry on Dec. 20. Cup bases without handles are more likely to fail or at least temporarily pull back from a buy zone, as weak holders finally get a chance to bail.
Also, even with Intel’s race to a new high, the RS line did not confirm the move.
Intel did immediately fall back into its base, but the buy point was still valid until Wednesday. Reports of a security flaw in Intel processors that would require a performance-sapping fix sent shares plunging, with Intel confirming some of the problems later. The stock tumbled as low as 43.65, more than 8% below the entry point, making it invalid. Intel did close above its 50-day line, off 3.4% to 45.26. However, shares were trading down about 1% in late trade.
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