September quarter results reported by Amazon (AMZN), Google (GOOGL) and Microsoft (MSFT) on Thursday saw the first two stocks gap to new all time highs, and the latter to a 15 year (!) high on massive volume. Aside from being three of the largest stocks on the planet there are a few things these stocks have in common, with the most obvious that their core businesses resemble monopolies; AMZN on-the-line retail, GOOGL on-the-line search and MSFT personal computer operating systems. The combined market capitalizations of those three stocks equals $1.3 trillion and Friday’s performance ignited a spark in two other mega-cap tech stocks that again operate in near monopolies and represent nearly $1 trillion in market cap, Apple (AAPL) and Facebook (FB). AAPL captures a disproportionate amount of profitability in the high-end smartphone space, and FB, well they just dominate across multiple mobile/social platforms showing relative ease in their ability to monetize their 1.4 billion user base. Neither stock has reported yet.
AAPL caught a bid last week, rallying 7% after under-performing during most of the 11% rally we have seen in the S&P 500 since Sept 29th. FB stock has rallied 19% from its Sept 29th low. On Friday it broke out to new all time highs in sympathy with AMZN and GOOGL:
On Friday’s Options Action on CNBC we discussed this price action of these five massive tech stocks that represent 40% of the Nasdaq 100. My friend Carter Worth had some amazing charts speaking to what he and I feel is poor market breadth, watch here:
Fewer and fewer stocks are powering the Nasdaq Composite to all time highs. Most importantly, the advance-decline of the index has been trending lower for nearly a year and half. And the number of stocks in the index making 52 week highs is at 3 year lows. Carter’s takeaway is simple. The mega cap stocks doing the heavy lifting are masking the fact that the average stock in the index is close to correction territory and some are in a bear market. And AAPL’s earnings tomorrow, and FB’s on November 4th could power the index to the prior highs. But at that point Carter would start to fade it.
I agree as I am not sure how five universally loved stocks (four at all time highs) already up massively on the year can help a whole heck of a lot from here on out. And the tech rally will need to broaden out to see the NDX meaningfully above 5000 in the near term:
One last point. I suspect these stocks continue to party as long as their is not a fundamental hiccup, so it may not be until Q4 earnings results in January where we start to get a sort of as good as it gets sort of feel. That’s assuming that AAPL and FB’s results support investor enthusiasm in the next week.