The noisemakers out there love to talk to you about something they like to call FANG, or FAANG or FAAMG. I think they change it each time, depending on which narrative they’re trying to pass along to the unaware.
They’re here to make noise, we’re only here to make money. See the difference?
What you will hear every day, if you choose to subject yourself to their crap, is that Google (Nasdaq: GOOGL) and Amazon (Nasdaq: AMZN) are only up 6% this year.
What you won’t hear is that the Equally-Weighted Technology Index (NYSEArca: RYT) just broke out to new all-time highs relative to the traditional Market Cap-Weighted Technology Index (NYSEArca: XLK).
In other words, while the mega-cap names are holding back tech a bit, the rest of the group is driving the sector higher.
Much higher, it seems:
To me, this suggests an expansion of upside participation, not a contraction.
Brilliant technical analyst Chris Verrone recently made a similar point. And not to pick on Carl (I really like Carl Q), but this a good example of what I described earlier:
Ratios between equally-weighted indexes and cap-weighted indexes aren’t always positively correlated with the market itself.
In fact, here is a weekly regression analysis comparing the Equal vs. Cap-Weighted S&P 500 Ratio and the S&P 500 itself. There’s clearly nothing there:
It’s not so much that we think we need to buy this or sell that because of a ratio breaking out to new all-time highs.
For me, I’m taking the Equally-Weighted vs. Cap-Weighted Technology ratio breaking out as evidence of expansion of breadth.
In other words, more stocks are participating to the upside, not fewer ones.
We live in a cap-weighted world. The noisemakers are going to use that against you.
We want to take this evidence and dive deeper into the individual names, manage risk, and worry less about where the sector is, or where the S&P 500 might be.
Most of these sectors and indexes are in massive ranges (“Video: Picking Stocks in a Sideways Range,” Breakout Profits, Feb. 1).
The opportunities, in my opinion, continue to be in the stocks themselves.
To wise investing,
Editor, Big Market Trends