Beached Whale Breakouts Plague Apple, Facebook, Google Despite S&P 500 At Highs | Stock News & Stock Market Analysis

The S&P 500 index and other major averages hit fresh all-time highs last week. But Apple (AAPL), Alibaba (BABA) and recent FANG breakouts Facebook (FB) and Google parent Alphabet (GOOGL) are among the many stocks that continue to struggle to make much headway past buy points. That raises risks for investors, who have become complacent because they haven’t suffered serious  negative consequences from sticking with the likes of Apple, Nvidia (NVDA) and other big names that suffered ugly post-breakout reversals.

XAutoplay: On | OffLike beached whales, some big-name stocks are making it to land, but then not going much of anywhere. Such stocks struggle to get off the beach, in danger of going underwater depending on the shifting market tides.

A lot of this reflects the general market. The S&P 500 index, like the other averages, has been grinding higher, with baby-step gains offset by shallow pullbacks. Individual names tend to follow the market, so breakouts occur during short-term upswings, leaving them vulnerable to the broader averages backing off for a time.

Alphabet, Facebook, Netflix

Alphabet limped above a 1,006.29 flat-base buy point on Oct. 13 in below-average volume. Facebook topped a 175.59 flat-base entry last Tuesday. But they didn’t really go anywhere. Thursday’s modest Nasdaq declines help push both back underwater. Alphabet and Facebook both edged higher Friday but didn’t re-enter buy zones.

Alibaba (BABA) has been playing this game for weeks. The Chinese e-commerce giant on Sept. 13 cleared a 177.10 buy point from a rare ascending base, the stock has been above and below the entry. Alibaba dipped 0.3% on Friday to 177.32.


Apple broke above a 156.75 flat-base buy point on Aug. 2, following a solid earnings report. Apple spent several weeks generally above level, but pulled back in September amid concerns about iPhone 8 demand and iPhone X production woes. The stock didn’t quite fall enough to make the 156.75 entry invalid, though a high-volume tumble through its 50-day line didn’t help.

However, Apple found support and is now working on a new flat base with 165.04 entry. Apple did fall back below its 50-day on Thursday, closing at 156.25 on Friday.

Electronic Arts

When one of these beached-whale breakouts just hovers by a buy point, you have very little cushion. You’re at high risk of falling underwater due to modest moves stemming from the market, industry or company-specific reasons.

Electronic Arts (EA) hung around a late July buy point for months. Then last week EA delayed a much-anticipated “Star Wars” video game. Shares slid 4.2%, hitting a three-month low. EA hasn’t invalidated its old entry and it’s in a new flat base, but it’s frustrating to be sitting on little-or-no gain for months, then see your stock go into the red.

A No-Fear Market

But investors have been complacent about lackluster breakouts. The lack of significant market corrections has helped stocks quickly recover.

Even with its significant sell-off, if you had bought Apple right at the old buy point, you’re down less than 1%.

In other cases, a stock shows ugly action but then rebounds for tidy gains. Nvidia is a great example.

Nvidia, The Land Shark

Nvidia broke out in mid-September and in two days had risen as much as 9.5% from the 174.66 buy point. But the stock then quickly reversed and erased all its gains and then some. Nvidia just avoided a 10% round trip that is an automatic sell signal. Investors certainly would have been justified at getting out of their position.

But it turns out that Nvidia wasn’t a beached whale but a land shark. Shares of the graphics and A.I. chipmaker turned around and rallied strongly. Nvidia closed Friday at 196.90, up nearly 13% from the buy point.


For blasé investors in 2017, Chipotle Mexican Grill (CMG) is a cautionary tale. The burrito chain, back when it was still delivering double-digit same-store growth, broke out in January 2015. Shares hung around for a few weeks near the buy point, but then sold off over several months, correcting nearly 15%. But Chipotle soon rebounded and cleared a new base in July 2015. Shares traded above or below that entry point until October, when it began to plunge over widespread food-borne illness outbreaks. But Chipotle kept falling.

Chipotle hit a multiyear low just last month and is currently more than 50% below its old high.


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Originally posted 2017-10-21 16:45:00.


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