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Are FANGs Going To Breakdown Soon?

By Chris VermeulenStock MarketsSep 02, 2020 10:28AM ET
www.investing.com/analysis/are-fangs-going-to-breakdown-soon-200536136
Are FANGs Going To Breakdown Soon?
By Chris Vermeulen   |  Sep 02, 2020 10:28AM ET
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  • FANG Index may begin to peak/top as RSI Divergence pattern sets up.
  • Dow Theory trend divergence confirmation suggests the end of the “Excess Rally” is near.
  • The VIX moving higher suggests greater concerns of increased volatility.
  • Dow Jones Utility Index moving lower on increased volume may be the key in a multiple-pattern set up that will confirm larger market trends.

For some context into today's research article, please review our recent Dow Theory Trending article from last week. We believe the divergent trend between the Dow Jones Industrial Average, the Dow Jones Transport Index, and the Dow Jones Utilities are keys to understanding the current market setup. Today, the Utilities are moving lower with moderately increased volume while the $INDU and $TRAN are both moving higher. We strongly believe we are very near to a peak in the U.S. stock markets based on Dow Theory and the divergent trends between these three indexes.

Are FANGs Going To Breakdown Over Next 4 To 10+ Days?

A secondary pattern we are watching closely is the FANG Index Weekly Chart, below. This simple RSI Divergence pattern setup suggests a peak may also be near for the rally in FANG/Technology. Whenever a strong upward price trend exists that fails to deliver a new RSI high level, this is called “technical divergence.”. At this point in time, we believe the alignment between the Dow Theory Trend divergence in association with the FANG RSI divergence may be more than a coincidence – it may be tied to the end of an overall “excess rally.”

FANG Index Weekly Chart.
FANG Index Weekly Chart.

In the following Nasdaq 100 (NAS100) Index weekly chart, we have highlighted past RSI divergence patterns (Tops) to help illustrate how RSI Technical Divergence works. Obviously, we would need to see a breakdown in the upward price trend within the next 5 to 7+ days to better confirm this technical pattern, but the downside move in the Dow Jones Utility Index helps to confirm that the upward price rally in the U.S. stock market is nearing what may become a major peak/top. If our analysis is correct, traders should begin to act to aggressively protect open long positions and watch the Dow Jones Utilities and the VIX for signs of increased risk.

Nasdaq 100 Weekly Chart.
Nasdaq 100 Weekly Chart.

Sometimes these subtle technical patterns align across multiple symbols/instruments to create a much larger pattern. We don't have any technical confirmation of this setup yet, other than the Dow Jones Utilities falling on increased volume. Our researchers have issued multiple warnings that a peak/top or Head-and-Shoulders pattern appears to be setting up across multiple symbols. We believe traders need to stay very cautious right now. Ultimately, this close to a U.S. presidential election and nearing the end of Q3, we would expect some increased volatility in the markets and a potential correction in this upside price rally. .Stay prepared.

Are FANGs Going To Breakdown Soon?
 

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Are FANGs Going To Breakdown Soon?

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Comments (9)
Larry Glickman
Larry Glickman Sep 03, 2020 2:24PM ET
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Chris great call!!
Yevgeny Pan
YevgeNYNY Sep 03, 2020 11:41AM ET
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Chris nailed all the haters todAy lol
Fernando Lazarini
Fernando Lazarini Sep 03, 2020 5:29AM ET
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"hahahahah". That's my concern.
Joao Sedlmayer
Joao Sedlmayer Sep 02, 2020 6:12PM ET
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Chris remide me Mr. G on the 90’s with the weather forecast.. He Was always wrong!
Rodolfo Barraco
Rodolfo Barraco Sep 02, 2020 5:46PM ET
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your conclusions are right, but the premises are wrong. Utility actually rallied today like never before. Dow is in rally. but there is a massive change from growth to value. Utility are going up (oposite of your article) but that signals people looking for shelter. Value rallies like crazy while Faang and growth today went down big time.  Retail investors are going to suffer.
Michael Galassini
RoyHobbs Sep 02, 2020 4:13PM ET
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Perma-bear will eventually be right just like the broken clock, and then he will say I told you so! In the mean time I will remind everyone that he had been prepping everyone for a lower low than we saw in April....how is that working out for you ):
Jonathan Sutton
Jonathan Sutton Sep 02, 2020 2:32PM ET
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Finally some sanity around here
JP JATTAN
JP JATTAN Sep 02, 2020 1:33PM ET
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👍Agreed
el karl
el karl Sep 02, 2020 10:40AM ET
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Someday maybe, because you are a broken clock, hahahahaha!!!!!!
 
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