Market Extra: The 7 companies propping up the U.S. stock market are sending a bearish warning that investors should not ignore

A group of elite stocks that have driven most of this year’s rally are sending a message that could portend more losses ahead.

The so-called “Magnificent Seven,” a group of megacap technology companies that represent the most valuable publicly-traded firms in the U.S., have broken below the neckline of a “triple top” technical price chart pattern, according to Michael Kramer, a longtime independent stock-market analyst and the founder of Mott Capital Management.

A composite index of these eight stocks (both Alphabet’s Class A
GOOGL,
-0.09%

and Class C
GOOG,
-0.03%

shares are included, and they count as separate issues) creating using FactSet data can be seen in the chart below.


FACTSET

Stock-market strategists use technical analysis to look for price patterns that might offer some insight into what might lie ahead for markets. While many are skeptical of its predictive power, the practice can at the very least help traders identify important levels where demand has picked up, or fallen off.

The “triple top” derives its name from the fact that a given stock or index has repeatedly failed to surmount a notable high. In this case, the Magnificent Seven logged their closing high for the year on July 18, when this composite index closed at 110.11.

They tested that level again on Aug. 31, when climbed as high as 108.17, according to FactSet data. The final test arrived on Oct. 11, when they hit 107.41.

The 100 level on the chart above represents the “neckline” in this pattern. A sustained break below the neckline is usually interpreted as a bearish signal.

To be sure, as Kramer pointed out, the market could break either way, and a move higher into the end of the year isn’t out of the question, should some fresh catalyst emerge to drive stocks higher.

“We broke the neckline, which is a bearish setup,” Kramer said during a phone interview with MarketWatch. “But if we hold here, it becomes bullish.”

However, the outlook for the Magnificent Seven, and for the rest of the Nasdaq, is looking increasingly grim.

As of Thursday, the Nasdaq Composite
COMP,
an index that includes every stock listed on the Nasdaq exchange but which is heavily weighted toward the Magnificent 7, was falling further into correction territory, with its sister index, the Nasdaq 100
NDX,
on track to join it, according to Dow Jones Market Data.

Stocks have been sliding since early August as the yields on the 10-year and 30-year Treasurys climbed to their highest levels in 16 years, with the 10-year briefly piercing 5% for the first time since 2007 earlier this week, FactSet data show.

Official government data released Thursday showed the U.S. economy boomed during the summer months. But that hasn’t spared Mag 7 constituents like Alphabet Inc., Meta Platforms Inc.
META,
+2.91%

and Tesla Inc.
TSLA,
+0.75%

from releasing earnings that disappointed, along with guidance that failed to inspire confidence. Alphabet’s Class A and Class C shares each fell more than 9.5% on Wednesday after the search giant released earnings Tuesday night.

Many stock-market analysts and economists, including Apollo’s Torsten Slok, have pointed out that, without the Mag 7, the S&P 500
SPX
would be lower year-to-date. The index is up 8.3% year-to-date, according to FactSet data, while the equal-weighted version of the S&P 500
RSP
is down more than 3.%.

Dow Jones Market Data show the Magnificent Seven group of stocks has seen its aggregate market capitalization expand by $3.6 trillion through Wednesday’s close, accounting for all of the S&P 500’s increase in market capitalization, and then some, to offset year-to-date losses from the other 493 companies in the index.

Investors will receive earnings from another group of those elite stocks, Amazon.com Inc.
AMZN,
+6.83%
,
after markets close on Thursday, but the darling of the group, Nvidia Corp.
NVDA,
+0.43%
,
isn’t set to report until Nov. 21.

Apple Inc. and Microsoft Corp. are also typically included in the Mag 7, along with Alphabet, Tesla, Meta, Amazon and Nvidia.

source

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