M2 Adjusted FAAMNG Tutorial/Analysis
The current FAANG symbol does not have a very long history. Depending on the symbol, you get a chart that either starts from mid-2019 or 2016. We get couple more years of data in this chart, back to early 2014. I weighted each stock equally according to its 60 month average, and adjusted for M2 expansion, which gives us a very consistent support line. There's also a horizontal resistance line that extends from 2018 onward that is currently being tested as support, which raises the questions:
Is historical support now resistance? Is the resistance line now support? Or will we drop below the resistance line once again?
It wouldn't surprise me if we got a bounce here to once again test that the Support line is *actually* now resistance and the drop in price wasn't a fluke. Which, maybe it was. But on the other hand, smaller caps have gotten completely crushed, look at the M2 Adjusted Russell 2000 for example:
We're getting close to the "value" zone, but we're still at the bottom range of wholesale prices. I wouldn't be surprised if there's even more stop-loss style liquidations at these prices.
There are many many unprofitable companies, roughly 50%?!, that are feeling the pain in the Russell. It's not crazy to think that once the smaller caps fall, the rest of the larger dominoes fall. First, there were drops in sort of intangibly valued companies like Netflix/Peloton. Market shrugged it off. Then we saw a single day -0.25 trillion$ valuation drop in Facebook. Market shrugged it off. Now in the past few weeks, Amazon is finally looking terrible, and this is the first time in YEARS that the market seems to be taking it seriously. How long until Apple/Tesla bite the bullet? The market can only shrug off so much localized losses before it becomes systemic. It's only a matter of weeks or months, in my opinion, until we see the remaining FAANMG and others reflect the state of rest of the market.
So how did i manage to get the symbol on the chart?
This method is not perfect. There's lots of ways to do this. I decided to equally weight each stock by their 60 month SMA, given that mean reversion is a well known phenomenon. But you can use any anything you wish, as long as it normalizes the price in a way that you like. Literally anything.
First, I wrote down the SMAs like this:
60 month SMA:
FB = 221.34
AMZN = 2250.99
AAPL = 85.60
MSFT = 173.64
NFLX = 380.58
GOOG = 1585.70
Notice that AAPL has the lowest average, 85.6.
We can use AAPL as our "benchmark".
Divide every SMA by 85.6:
FB = 2.5857
AMZN = 26.296
AAPL = 1
MSFT = 2.0285
NFLX = 4.4460
GOOG = 18.524
Now we can add each price together, and divide by our adjuster that we just calculated, to get a fairly crude, but accurate enough, equally average-weighted basket:
AAPL+
FB/2.5857+
AMZN/26.296+
MSFT/2.0285+
NFLX/4.4460+
GOOG/18.524
Mash it all together, you get:
NASDAQ:AAPL+NASDAQ:FB/2.5857+NASDAQ:AMZN/26.296+NASDAQ:MSFT/2.0285+NASDAQ:NFLX/4.4460+NASDAQ:GOOG/18.524
And adjust for M2 if you want:
(NASDAQ:AAPL+NASDAQ:FB/2.5857+NASDAQ:AMZN/26.296+NASDAQ:MSFT/2.0285+NASDAQ:NFLX/4.4460+NASDAQ:GOOG/18.524)/FRED:WM2NS
This looks ugly though. The value is so small, there's no horizontal bars on the chart because of a display bug in TV or some other problem. So we can simply multiply the entire series by a value. in this case 15, until we get something that looks good.
(NASDAQ:AAPL+NASDAQ:FB/2.5857+NASDAQ:AMZN/26.296+NASDAQ:MSFT/2.0285+NASDAQ:NFLX/4.4460+NASDAQ:GOOG/18.524)/FRED:WM2NS*15
There's a lot of ideas fairly similar to this out there, but I hope this helps someone who might be curious how people came up with these crazy long symbols. Try it with your favorite sectors! Make your own sector benchmarks. You can combine up to 10 symbols at once! Here we only used 6 symbols (7 if you include WM2NS).
Good luck and don't forget to hedge your bets :)
Is historical support now resistance? Is the resistance line now support? Or will we drop below the resistance line once again?
It wouldn't surprise me if we got a bounce here to once again test that the Support line is *actually* now resistance and the drop in price wasn't a fluke. Which, maybe it was. But on the other hand, smaller caps have gotten completely crushed, look at the M2 Adjusted Russell 2000 for example:
We're getting close to the "value" zone, but we're still at the bottom range of wholesale prices. I wouldn't be surprised if there's even more stop-loss style liquidations at these prices.
There are many many unprofitable companies, roughly 50%?!, that are feeling the pain in the Russell. It's not crazy to think that once the smaller caps fall, the rest of the larger dominoes fall. First, there were drops in sort of intangibly valued companies like Netflix/Peloton. Market shrugged it off. Then we saw a single day -0.25 trillion$ valuation drop in Facebook. Market shrugged it off. Now in the past few weeks, Amazon is finally looking terrible, and this is the first time in YEARS that the market seems to be taking it seriously. How long until Apple/Tesla bite the bullet? The market can only shrug off so much localized losses before it becomes systemic. It's only a matter of weeks or months, in my opinion, until we see the remaining FAANMG and others reflect the state of rest of the market.
So how did i manage to get the symbol on the chart?
This method is not perfect. There's lots of ways to do this. I decided to equally weight each stock by their 60 month SMA, given that mean reversion is a well known phenomenon. But you can use any anything you wish, as long as it normalizes the price in a way that you like. Literally anything.
First, I wrote down the SMAs like this:
60 month SMA:
FB = 221.34
AMZN = 2250.99
AAPL = 85.60
MSFT = 173.64
NFLX = 380.58
GOOG = 1585.70
Notice that AAPL has the lowest average, 85.6.
We can use AAPL as our "benchmark".
Divide every SMA by 85.6:
FB = 2.5857
AMZN = 26.296
AAPL = 1
MSFT = 2.0285
NFLX = 4.4460
GOOG = 18.524
Now we can add each price together, and divide by our adjuster that we just calculated, to get a fairly crude, but accurate enough, equally average-weighted basket:
AAPL+
FB/2.5857+
AMZN/26.296+
MSFT/2.0285+
NFLX/4.4460+
GOOG/18.524
Mash it all together, you get:
NASDAQ:AAPL+NASDAQ:FB/2.5857+NASDAQ:AMZN/26.296+NASDAQ:MSFT/2.0285+NASDAQ:NFLX/4.4460+NASDAQ:GOOG/18.524
And adjust for M2 if you want:
(NASDAQ:AAPL+NASDAQ:FB/2.5857+NASDAQ:AMZN/26.296+NASDAQ:MSFT/2.0285+NASDAQ:NFLX/4.4460+NASDAQ:GOOG/18.524)/FRED:WM2NS
This looks ugly though. The value is so small, there's no horizontal bars on the chart because of a display bug in TV or some other problem. So we can simply multiply the entire series by a value. in this case 15, until we get something that looks good.
(NASDAQ:AAPL+NASDAQ:FB/2.5857+NASDAQ:AMZN/26.296+NASDAQ:MSFT/2.0285+NASDAQ:NFLX/4.4460+NASDAQ:GOOG/18.524)/FRED:WM2NS*15
There's a lot of ideas fairly similar to this out there, but I hope this helps someone who might be curious how people came up with these crazy long symbols. Try it with your favorite sectors! Make your own sector benchmarks. You can combine up to 10 symbols at once! Here we only used 6 symbols (7 if you include WM2NS).
Good luck and don't forget to hedge your bets :)