No doubt, the big tech stocks and "FANGs" are important drivers in this stock market. Since the bull market began, this core group of stocks - Facebook Inc. (Nasdaq: FB), Amazon.com Inc. (Nasdaq: AMZN), Apple Inc. (Nasdaq: AAPL), Netflix (Nasdaq: NFLX), Google/Alphabet Inc. (Nasdaq: GOOG), and Microsoft Corp. (Nasdaq: MSFT) - have been responsible for pulling the market higher.
Of course, they're not the only stocks causing the bull market. However, when we talk about the value, or market capitalization, of the stock market, these are some of the biggest and most valuable companies out there.
And they represent a huge weighting in the major indexes.
For example, the market cap of the S&P 500 is in the neighborhood of $23.87 trillion. Apple, which just recently scaled the $1 trillion mark, is worth 4.2% of the total alone. That's just one stock.
Add in the other five FANG stocks and the total soars to $4.21 trillion, or 17.6% of the S&P 500.
That's more than one sixth the value of the U.S. benchmark index concentrated in six stocks. And if we take out Netflix, which is really not as gargantuan as the others, the concentration of value gets even worse.
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You can see that if the FANGs start to tumble, the market indexes will be in trouble, too. It's just math. And that doesn't even factor in all the ETFs loaded up with these bad boys. If they start to decline, ETFs will be forced to liquidate more of these stocks, which, in turn, pushes them even lower.
It's a negative spiral. Selling will beget more selling.
What will happen to the average investor's psyche when their portfolios crater thanks to weakness in just a handful of stocks? It won't be pretty.
Now, these are the numbers to watch for in each of these major tech stocks. If we start hitting these numbers, the markets could be in danger...
If Tech Stocks Hit These Levels, Your Portfolio Could Suffer
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Money Morning Capital Wave Strategist Shah Gilani thinks it's crucial that investors watch these stocks like hawks. He also outlined price levels that should serve as the last warning for investors to get out before things really go bad.
Chart enthusiasts call these levels "support," as they are prices at which a stock or an index should see buyers coming back into the market. They are relatively cheap prices where bulls think there is value to be had.
The problem occurs when these price levels do not incite buying. What was thought to be cheap in the past is no longer considered to be cheap today. Not only that, sellers start to press their advantage, and these stocks or indexes can really fall fast.
Here's Gilani's list of lines in the sand for the FANGs:
Facebook - After July's earnings miss and price debacle, Gilani sees critical support at $150. At its worst levels last month, the stock touched $164.30 before bouncing back to $183.81.
Apple - This stock hit it out of the park with earnings and a new all-time high to the $1 trillion market cap level. However, support at $180 is key. The stock traded at $207.11 Tuesday.
Amazon - The key level here is $1,600, well below its recent $1,862.48. Gilani thinks this support should hold, but if it doesn't the next level is $1,400. Below that, look out below.
Netflix - While this stock does not carry the "oomph" of its larger cousins, it is still a bellwether for the market. Support here is $300, down from its recent price of $351.83. Keep in mind that this stock traded at $417 as recently as early July so this is one of the weaker FANGs.
Google - July's earnings were good and the stock jumped to a new record high of $1,273.89. However, it's been a bumpy ride from there. The $1,200 level is key here. Below $1,175 would be a worrisome sign. Under $1,100 would likely spell big trouble for the stock - and the market.
Microsoft - This stock seems to be "old technology," but looking at its stock performance that would be just plain wrong. Support here is $100 and that is not that far below recent trading at $108.88.
Dow Jones Industrial Average - Support here is 23,500. That would wipe out all the gains made following the lows of earlier this year.
Standard & Poor's 500 - Support at 2,700. If that does not hold, things will really get dicey below 2,550.
Nasdaq - Look for support at 7,400 and then again at 7,000. Below 6,800 and it will really be "look out below."
Again, support levels are where the bulls "should" start buying. If they don't, the path of least resistance will be down to the next support. And if the last-straw support breaks, investors better be ready.
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