The five “FAANG” stocks are skewing the indexes to look much better than the overall market

Because they have a large weighted-average influence on the major stock market indexes, it’s getting to the point where the five “FAANG” mega stocks (Facebook, Apple, Amazon, Netflix and Google) are skewing these indexes to look much better than the overall market is performing, and that is misleading.  As long as these five stocks rise, the indexes seem to rise, despite the fact many other stocks are flat or declining.  It may reach the point where the major indexes are no longer a relevant gauge of the broad U.S. stock market, just as mathematical tinkering has already rendered the Unemployment Report a misleading statistic.   

It is historically true that most stocks tend to rise during the brief Thanksgiving trading week, and with no major negative news, this year was no different.  Most of our positions, both short and long, were risers, although this phenomenon may only last a week.  As a result, most trades this week are short-to-long reversals or at least exits from shorts.    

Still seeing a mix of headlines regarding 2018 forecasts – with one major brokerage/bank (Bank of America) suggesting a big decline on the horizon while other market analysts are predicting a rosy market rise.  Bear in mind though, the rosy forecasts are all based on several productive events occurring in Washington (notably tax reform passage), at the Fed and overseas, and should any of them not happen, they could be wrong in a big way.

Highlights:  5 new weekly highs in long positions.  8 stocks with double-digit long gains:

     FIVN +17%        HUN +20%       CECO +31%                              LPSN +58%      BZH +73%                                                                   

     FMSA +10%                                URBN +39%                                                        

     NCI +18%                                                        

     

1 new weekly low among short positions.  4 stocks with double-digit short gains:

                               EVH +27%         CECE +35%

                               EVTC +20%    

                               TRUE +23%

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