All stocks are not created equal...at least as far as it concerns the influence that they hold over the overall broader market. So you may or may not hold these stocks or be interested in these stocks...YET, they can greatly affect your stocks. Why?
These indexes mentioned above are "market cap weighted" indexes, meaning that the larger companies influence the index much more than the smaller of the companies within the index.
Well, as you know, a couple of companies (temporarily at least), have hit the $1 trillion market cap mark and another couple of stocks have been fairly close to that mark. These companies are Apple (AAPL), Amazon (AMZN), Google (GOOGL) and Microsoft (MSFT).
From a market cap standpoint, presently...they're in this order: Microsoft ($817 billion market cap), Amazon ($802 billion), Google ($729 billion) and Apple ($727 billion). On any given day, the order of these can flip flop due to the volatility in these stocks. But since these four (overvalued) stocks have such huge market caps relative to most large companies in America, they hold the biggest influence over most of the major market stock indexes. Therefore a move downward in Microsoft or Apple will move the market downward more than a stock like Wal-Mart ($286 billion).
I write about this now because these stocks are VERY overvalued and looking toppy on their charts. So as they have very sizable corrections, it's going to have a very large effect on say, an S&P 500 index fund that you may have in your 401k or IRA account. And even if you don't hold any of these funds, as these FOUR stocks head lower over time, that will lower the S&P 500 index and as that happens, many people will "panic sell" and as they do, that causes selling in all of the largest 500 companies/stocks in America. That's how these four companies hold a lot of the near- to medium-term fate of the rest of the market in their hands.
Let's take a look at these companies, one by one:
One of the biggest ways to see the huge potential downside risks is to note how wide the gap is between where the stock price is and where it's 200-week moving average (red line) is (emphasized by the red arrows).
We can also see that MSFT's RSI has been slumping which shows that the upward momentum is waning. We can see that the selling volume is picking up and that the MACD has lost its upward momentum and has now slumped well below its zero line. These technical breakdowns and losses in momentum show that the tide is likely turning. And whether these stocks have their huge sell-offs now, six months from now or a year from now...the premise still stands that they'll have a HUGE effect on stocks very broadly. (And I believe this downturn will likely be sooner rather than later!)
Amazon has already broken its most aggressive uptrend line and its gap between its price and moving average is still HUGE, showing tons of downside risk potential. (And by the way, these stocks will likely fall VERY FAR below these moving averages before it's all said and done).
Also notice, the huge surge in selling volume over the past year. This shows the tracks in the snow of the large institutions exiting the stock. And of course, it's MACD is losing momentum as well.
While Google's stock price isn't quite as stretched from its moving average, it still shows quite a sizable downside risks over the medium-term as well. It's most aggressive uptrend line has been broken and its RSI is diving, big-time! And the MACD is reflecting this loss of upward momentum as well.
And lastly, Apple, which has already broken its most aggressive uptrend line and has led this group of four to the downside. It's already closed its gap between its price and moving average BUT, after some sort of bounce, we'll likely see its decline continue well below its moving average, before this sell-off is likely over. (And of course, its RSI/MACD are slumping like the others).
Why might these downtrends continue to extend not only to these major moving averages but well below? These stocks have been some of the "darlings" of the latest market run-up and therefore there are a TON of people that are in these stocks and affected by their volatile break-downs and sell-offs.
In fact, in most cases...if you look back at these charts and see where the price of the stock is now relative to its history...you'll find that most people who've "bought and held" these stocks over the last year to year and a half are now down on their money. And when a ton of people are "in the red" after being comfortably being accustomed to being in the green, they begin to freak-out en masse and collectively hit the "sell" button.
This starts a vicious cycle that feeds off of itself for quite some time causing large percentage losses and long-downtrends.
And while these four stocks won't shoulder the total blame for the sell-off in the S&P 500, NASDAQ, etc., they will still play a HUGE role since they're such a large slice of the pie, currently, in these indices.
So keep an eye on these four stocks!
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