Why FANG Stocks Can Extend Their July Rally

After a weak June, technology stocks are roaring through July. Leading the charge are the now-familiar FANG stocks: Facebook (FB), Amazon (AMZN​), Netflix (NFLX​) and Google, aka Alphabet (GOOGL​). And as we head into third-quarter earnings season, a new sign says the bulls will continue their run.

The Moving Average Convergence Divergence (MACD​) has turned positive for the FANGs, and likewise for the Nasdaq 100 ETF (QQQ), which tracks the top 100 stocks on the Nasdaq composite. The question now is whether this is a bounce in a downtrend that started in June, or the reemergence of a bullish trend that was reignited in the beginning of this year.

Much of this year’s tech rally has been due to improving earnings growth. The selloff at the end of the second quarter indicated a possible rotation out of the sector, but money has been steadily flowing into high-beta names to start the month, and pressure is going to be on the FANGs heading into earning season.

Facebook and Amazon have shown the best relative strength whereas Netflix and Google have been laggards. Looking at Amazon’s chart below, we see a symmetrical triangle pattern. Usually, these occur in times of consolidation, and breaks above or below trendlines can be signals for the start of a new directional trend.

 

On Wednesday there was an upside breakout on the close coupled with a bullish MACD reversal. Watch for a test of the old high around $1,020 and a possible run into earnings if shares can break through this level. Facebook was even stronger as it broke through its old high and ran up to near $160. A few possible explanations for Facebook’s and Amazon’s relative strength are expectations for solid earnings and fewer valuation concerns compared with those of Netflix and Google.

The Bottom Line

After suffering a correction, technology is making a noticeable comeback. With momentum shifting in the bulls’ favor, watch the FANG stocks to see if they can break through resistance from prior highs. And with earnings coming up, it is possible for them to inch higher into their respective reports.