It seems like you can't turn on a television without hearing about the "FANGMAs" - which of course are Facebook, Apple, Netflix, Google, Microsoft, and Amazon.
You'll hear they're the linchpins of the economy; you'll hear they're the only force keeping the market up - that they're outpacing every other stock out there. Eventually, you'll hear these companies can cure a rainy day.
And there's more than a little truth to this, at least until you start trying to chart their impact on the weather.
It makes for good television, but when you get right down to it, this FANGMA obsession opens the door to costly – and potentially disastrous – emotional decision-making, which, as I talk about all the time with 10-Minute Millionaire Insider and Stealth Profits Trader readers, is best avoided.
So what's the truth about the FANGMAs?
Well, I ran the numbers myself to share with you...
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The enormously popular but comparatively narrow Dow Jones Industrial Average is a price-weighted index of 30 stocks that, incidentally, with the recent expulsion of General Electric, are not very industrial at all these days.
In this kind of index, more weight (relative to the rest of the index) is given to the price of the stock. A Dow component stock like Goldman Sachs Group Inc. (NYSE: GS) that jumped from $228 up to, say, $238 will have a much bigger impact on the index than if its fellow Dow component Cisco Systems Inc. (Nasdaq: CSCO) leapt from $42 to $52, which, at nearly 24%, is the bigger gain - by far - in real terms.
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The S&P 500 is the index the pros use to get a quick look at the broadest cross section of the overall market. Believe it or not, it holds 505 stocks, which only sounds weird until you think of the small handful of its 500 companies, like Google and News Corp. (Nasdaq: NWSA) that offer different classes of shares.
The S&P 500 is capitalization weighted, so that the higher the market cap, the bigger the impact. A stock like mighty Apple - closing in on a mind-boggling $1 trillion market cap - is going to impact the index much more than "tiny" Discovery Inc. (Nasdaq: DISCA) with its "mere" $22.3 billion market cap.
Taken in this context, it's easy to see why so much hope rests with the FANGMA stocks.
But...
Here's where it gets interesting: The S&P 500 also comes in an "equal-weighted" flavor, and it's here where the truth of the FANGMA stocks starts to reveal itself.
The "classic" S&P 500 is up 4.77% this year as of Friday, July 13.
The S&P 500 Equal Weight Index, where all components have the same impact, where Apple and Amazon get the exact same weight as Mattel or Discovery, is up 3.1%.
That's lower, sure, but still well up for the year.
If the FANGMAs, the "Big Tech" mega caps, were really doing all the heavy lifting, we'd see the S&P 500 Equal Weight Index faltering - significantly.
So the FANGMA stocks are leading, but they're just not making an unusually large difference. In fact, going all the way back to the bull market of the 1990s, in 1996 to be exact, the current difference between cap weighting and index weighting is within one standard deviation.
There are plenty of other indications that there's healthy breadth to this market and that a good number of stocks are participating in moves to the upside.
That's something a technician like me really wants to see, because there are plenty of potentially profitable bullish trades to research and recommend for my subscribers.
You don't have to just take my word for it - although you certainly could.
The truth is, in 2018, there have been 143 S&P 500 stocks with double-digit or better gains. There have been just 91 with double-digit or steeper losses. That's 57% more big gainers than big losers.
Overall on the S&P 500, there have been 265 winners versus 240 losers - that's 4.2% more winners than losers, almost perfectly in line with overall gains.
This confirms that market breadth is about as healthy as can be, consistent with market returns, and most definitely not unbalanced, as has been suggested out there in the media.
It's a decidedly bullish development - one that, as I've said, leads me to maintain a bullish bias toward quality stocks hit by pullbacks of any kind.
What's more, there are two places to go from here. The 2,800 level on the S&P 500 is critical. This is our "line in the sand." We hit it on Friday, and we've been hovering around it ever since.
It represents nothing less than all the highs we've hit in February, March, June, and now July. Resistance has held pretty firm here. A breakout higher, and my experience tells me we're off to new all-time highs.
A pullback from these levels, on the other hand, would not necessarily be dire news at this point. Instead, it would mean the market meanders sideways a while longer. There's nothing out there - no "fuel" for a really strong short-term downward move, and no reason that I can see to be bearish right now.
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