Why This Market Rally May Be Short-Lived

Why This Market Rally May Be Short-Lived By Jeff Clark Thursday, December 17, 2015 The year-end stock market rally got off to a good start on Tuesday. All of the major stock indexes were up about 1%. And all the market sectors were higher, too. The semiconductor sector jumped 1.5%. Bank stocks gained 3%. The biotechnology sector rallied 3.4%. Even the beaten-down oil sector surged 2.4%. But there was one group of stocks that didn't participate in the gains. And sometimes you can tell more about the health of a rally by noticing the stocks that don't join in.  The 2015 market leaders – the high-growth stocks that have marched higher throughout the year – didn't budge on Tuesday. Facebook (FB) and Amazon (AMZN), stocks that are up 36% and 125% this year, respectively, were basically unchanged. Shares of Netflix (NFLX), which are up 140% for the year, fell 1.7% on Tuesday. And Alphabet (GOOG) – formerly Google – which is up 50% over the past 12 months, dropped 0.6%. These "FANG" (Facebook, Amazon, Netflix, Google) stocks have held the stock market up all year. These are the stocks that portfolio managers should be anxious to show investors they hold in their portfolios at the end of the year. They should be the stocks that perform best in a year-end rally. By not participating in Tuesday's big gains, the FANG stocks are suggesting this rally may not have far to run. That could change, of course. Maybe the FANG stocks are just a little slow to get started. Maybe they'll play catch-up and resume their leadership roles. That would be a healthy sign for the market. But I wouldn't count on it. The charts of these stocks look toppy. For example, take a look at this chart of Facebook (FB) through Tuesday's close... After peaking at more than $107 per share in mid-November, FB formed a consolidating triangle pattern. That's a series of lower highs and higher lows. FB broke down from that pattern last week. Then, on Monday, the stock rallied back up to test the breakdown level as resistance. If the stock were going to break through that resistance level and continue higher, then you couldn't have asked for a better backdrop than a big rally day in the broad stock market. But FB didn't participate. Now, the chart pattern looks bearish. Resistance has held, and the odds favor another push to the downside. The charts of the other FANG stocks look similar. We are in a strong, seasonally bullish time of the year for the stock market. We're coming off of extreme oversold conditions that should provide enough fuel to push the market higher through the end of the year. But keep an eye on the FANG stocks. If they can't resume their leadership roles, then their weakness on Tuesday may be a warning that this rally will be short-lived. Best regards and good trading, Jeff Clark