There are times when fundamentals like sales, profit margins, and earnings are the best predictors of where stocks and markets are going.
Then there are times when stocks and markets untether themselves from fundamental moorings.
That’s when investors must look to support and resistance levels to predict where we’re going next.
To see where those important levels are right now, just follow the leaders.
There’s no mistaking which stocks powered the long bull market higher.
They’re the FAANG stocks: Facebook Inc. (NasdaqGS:FB), Amazon.com Inc. (NasdaqGS:AMZN), Apple Inc. (NasdaqGS:AAPL), Netflix Inc. (NasdaqGS:NFLX), and Google’s parent company, Alphabet Inc. (NasdaqGS:GOOGL).
It was easy to predict which way those stocks were going simply by following their fundamentals. They all enjoyed consistent, stellar growth in revenues and net profits. Fantastic fundamentals drove their stock prices higher and higher, for years.
And they drove benchmark indexes like the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite higher and higher.
That’s because those big-capitalization companies got a lot bigger as their stock prices soared.
Capitalization means market value and is calculated simply by multiplying the number of shares a company has outstanding times the price of a share.
For example, Apple has 4.83 billion shares outstanding. Multiply those by its share price, $213, and you get a capitalization or market value of $1.03 trillion.
As the FAANG stocks’ shares climbed ever higher, their capitalization grew.
That’s important to understand. As their capitalization, and share price in some market benchmarks, increases, the weight they carry in the benchmarks they’re in increases.
In other words, they are so big that they influence levels of the Dow, the S&P 500 and the Nasdaq Composite.
Here’s How It Works
Of course, the FAANGs aren’t the only stocks that move markets, but they have been having an increasing influence on the benchmarks they’re in as they’ve been growing.
Investors are now looking at stocks and markets through the prism of prices and not fundamentals, because fundamentals take a backseat to price when nervousness overcomes analysis and stocks are gyrating and mostly headed down. That means support and resistance levels matter.
Support and resistance levels are derived from graphs of stocks and market indexes. They are levels where significant buying and selling have happened.
They’re important because they’re an indication of investor psychology.
Take support levels, for example. If a lot of buying occurs at a particular price level, then a stock rises above that level for some period of time, and investors key in on that earlier buying level as support.
If the stock or market comes down to that previous significant buying level, investors look to see if there’ll be more buying there again. If investors buy there again, for whatever reasons – and sometimes the support level itself becomes a reason – that’s supportive of the stock price and can halt a downward move.
Support levels don’t always hold. They get broken, and that worries investors because that price level drew a lot of buyers. If the stock or market breaks through that support, investors may sell to not lose much since they had previously bought stock around that level.
Resistance is the opposite of support. If a stock or the market sees significant selling at some price level, sending the stock or market lower because of selling there, investors look to see if that resistance level can be pierced to the upside. If it can, that often indicates buyers expect higher prices to draw in more buyers.
So, here are the next support and resistance levels for the FAANG stocks and the Dow, the S&P, and the NASDAQ.
Facebook recently broke its strong support level at $150. That’s a worrisome sign. Its next support is $120. Below that, it’s anybody’s guess. FB will likely see resistance at $150, $160, $170, $180, and $190. If FB gets above $190, it’s probably going to make new all-time highs.
Amazon’s been swinging wildly, losing big chunks in the process. AMZN broke its $1,600 support level and is now trading around $1,500. Its next support level is $1,400. Below that, it’s scary. AMZN has its first resistance at $1600, where it’s last support used to be. Above that its next resistance level is at $1,800.
Apple has good support at $210, right about where it’s trading today. Below that, AAPL’s next support is at $190. Below that, it’s scary. Apple’s real resistance is its all-time high at $233. If it breaks through that level, that’s a great sign for Apple and hopefully the market.
Netflix broke its support at $325. Its next support is at $275, around where it’s trading today. If NFLX, breaks support, here it could drop to $225 or $200. NFLX’s resistance is now its old support at $325.
Google’s right down to its support at $1,000. If GOOGL can’t hold support here, its next support is at $900. There’s a lot of resistance overhead for Google between $1,175 and $1,200.
The Dow Jones has some minor support at $24,500. It has minor support at $24,000. But it’s next major support is $23,500. Below that and things are getting ugly. The Dow’s resistance is now at $25,500, which is a long way up from where it’s trading now.
The S&P 500’s support is at $2,600, then $2,550. Below that is an even scarier place for us all. The S&P’s resistance is now at $2,800.
The Nasdaq Composite’s support is at $7,000. Below that there’s some support at $6,800. Below that is nothing but air. The Nasdaq’s resistance is all the way up at $7,600, which would be a great level to get to if all the recent selling of tech stocks turns into bottom fishing and bargain hunting.
Support levels are the most important metric to watch “when logic and proportion have fallen sloppy dead.”
That’s where we’re at.
Here’s What to Do
And when we get to this stage, it’s not time to “buy the dip” or do whatever else the fools on TV are telling you to do.
Instead, it’s time to target the worst companies in America.
They’re not only falling – they’re falling harder than ever.
These companies are so predictable that it’s easy to get rich off of them (more details here).
You just need to know how to do it.
I show you how right here.
This opportunity isn’t going to stay open forever – so make this move now.