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.