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Just last week, I showed you how the markets and the six mega-cap stocks driving them higher, were getting a bit ahead of themselves.
I don't want to be the "I told you so" guy, but… well… I'm a positive guy; positivity is a good thing, but when positivity is all there is – watch out.
Since we last spoke, the S&P 500 has shed 5%, the Dow 4%, and the mighty Nasdaq Composite – the record-smashing star performer of summer 2020 – has tanked nearly 10%.
Even more than the broader S&P 500, the Nasdaq and the six 800-pound gorillas that run the show there require our immediate attention.
Don't get me wrong: It's not time to drop everything and run for the hills, but a few position tweaks, a little profit-taking, and some vigilance are in order…
Why These Stocks Have Soared
We're still near record highs in unemployment, and we're still contending with an out-of-control or just-barely-under-control novel coronavirus pandemic – one that could still boil over again and result in economy-wrecking lockdowns come cooler weather.
And we've had, at least until this past Thursday, a market powering higher and higher, not just because of stimulus, but also because the business environment – grim as it is – favors growth in Alphabet Inc. (NASDAQ: GOOGL), Facebook Inc. (NASDAQ: FB), Apple Inc. (NASDAQ: AAPL), Netflix Inc. (NASDAQ: NFLX), Microsoft Corp. (NASDAQ: MSFT), and Tesla Inc. (NASDAQ: TSLA).
Pandemic or no, election or not, these stocks will continue to benefit from the paradigm shifts underway in how we live, play, and work.
But well-placed positivity in these stocks has, thanks to the mechanics of mutual and exchange-traded funds and simple, widespread bandwagoning, transformed into the dreaded "irrational exuberance." In other words, with these stocks, positivity has become the whole story.
These companies have become bellwethers for the entire market. And at the moment, they're moving down and taking most everything along for the ride.
That said, I want to make it clear: I'm not a "bear." I think, once the dead money is cleaned out, these six market leaders will keep climbing. But we have to be realistic; there are positions and profits to protect here.
Let's look at performance and support levels in these stocks that most everyone owns…
For Whom the Bell(wether) Tolls
Facebook powered 99.51% higher off its March 18, 2020 lows and is up 42.8% year to date as of Aug. 31, 2020.
Apple jumped 130% off its March 23, 2020, lows and is up 75.77% as of Aug. 31.
Amazon leapt 105.8% off its March 12, 2020, lows and is up 86.78%, again, as of Aug. 31.
Microsoft shot up 65.85% off its March lows and is up 43% year to date, as of the end of August.
Google ran up 54.66% off its March 23, 2020, lows and is up 22.22% over the same time frame.
The top performer of them all, Tesla, blasted off 589% from its March 18, 2020, lows and was up an eye-watering 495.5% since the beginning of this year.
If that's not irrational exuberance, nothing is.
I hope you enjoyed (read: profited from) the recent ride up, but now you want to make sure you've got your trailing stops set.
And keep these "levels" in mind, meaning mark them on your graphs and on your brokerage statements. Because if these stocks break down through the proprietary levels I've calculated below, they're very close to technical levels traders are going to be watching.
If Facebook backtracks to $278, take some profits; if it backtracks to $258, take some more. If FB heads quickly toward $225, you better hope it stays there, otherwise it's time to take your profits off the table entirely and see how low it can go before you buy back in.
Should Apple slide to $99, do likewise. If AAPL heads quickly toward $88, there's a good chance it will test support at $82. You better hope it stays there, otherwise… same rules apply. Take your money out, look for the smoke to clear.
Amazon? If it falls to $3,085, harvest some gains. If AMZN lurches quickly toward $2,886… well, you know what to do: Bank gains, wait out the storm with your money.
When and if you see Microsoft plunge to $200, pocket some of your winnings. If MSFT beats feet toward $187, hopefully it stays there, otherwise it's "everybody out of the pool." In that case, I'll let you know when to move back in.
If Google backtracks to $1,543, take some profits; to $1,462, take some more. Hope like hell it stays above $1,398, but if it doesn't…. you know the drill.
Should Tesla tank to $320, take the money; $273, and it's take the money and run.
Again, these stocks are bellwethers. I watch them every trading day, and you'd do well to do that, too. These stocks and the markets they're pulling may pull out of their collective nosedive, in which case, we'll have been treated to profits and attractive entry prices.
On the other hand, there's a chance this could snowball, which would necessitate a pivot to put trading and short-selling.
That time isn't yet, but I'll be watching.
My First-Ever Stock "Lightning Round"
As you can see, I don't pull any punches when it comes to stocks. I tell it like it is; my readers deserve that.
And my team and I just shot a video where I dish it up about 50 stocks – good, bad, and ugly – and say exactly what I think about them. You can click here to watch it…
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.