It is no secret that the strength of the hottest tech stocks really carried the market’s water over the last year or so. The so-called FANG stocks, in any of a number of iterations, outpaced the major indices and by some measures now account for a whopping 46% of the market value of the Nasdaq-100 index.  No matter what these stocks do, it will greatly impact the NDX, the Nasdaq Composite, the Standard & Poor’s 500 and any technology-based exchange-traded fund.

Since they were hot tickets last year, they did indeed drive the market higher simply by their gains in market capitalization. It’s just math.

Before moving on, I need to define the group. FANG started out as Facebook, Amazon.com, Netflix, and Google. Then Google decided to change its name to silly Alphabet, lord knows why, so now every time we write about it we have to say “Google-parent, Alphabet.” Sorry, not in my blog. I hoist a central digit to you, Google.

Anyway, over time, we added Apple to the mix, creating FAANG. But Microsoft did not go down without a fight so we can say FAANGM. However, since Netflix is really only 1. 75% of the NDX, we can bump it out to leave us with FAAMG. That is what I will carry forward here.

The Performance Thesis

I wondered what the market was doing when not overrun by the performance of the FAAMG group. There were ways to mitigate that with equal-weighted ETFs, such as the QQEW (Nasdaq-100) and the RSP (S&P 500). But when we overlay the cap-weighted and equal-weighted versions they track pretty well.

Could it be that the performance of the big five was so strong that it even showed up in equal-weighted indices?

Next was to actually remove these stocks from the index and see how it charts. I asked my colleague Dave Steckler, a retired investment adviser, stock-market technical analyst and a whiz with the High Growth Stock Investor software package, to create that index for me. He used the OEX (S&P 100) and removed the FAAMGs. The result was still cap-weighted.

Here is his chart with my standard chart of the regular OEX. I don’t see much of a difference.

Dave told me that his index, calculated from 3/28/16 to 3/20/18, was up 26.69%.  Compare that to the regular OEX and its 31.92% gain.  Then, looking at the two charts I concluded that the only real difference was beta. Not much of a shocker, considering how much of the market’s gain was attributed to this group.

Technical Clues

If we look more closely, there is not much of a technical difference, either. Here’s what I see, just eyeballing things. For completeness, the charts presented here begin in about May 2016 so the performance numbers will be a bit different.

Fibonacci levels and trendlines look rather similar.  Right now, the early March high in the OEX equaled the February bounce high. For the fangless, or should I say FAAMG-less version, it just missed getting back to the early March high. That is just not enough to draw any technical conclusions.

The only real technical analysis difference is that the FAAMG-less chart has a flat range from March to September of last year while the regular OEX kept inching higher. Several of the big five had nice earnings-related jumps during that span.

But what I really wanted to find was some sort of difference in technical patterns. Or perhaps different trendlines. Or maybe support or resistance violations in one index but not the other.

It was not to be. And now with Facebook losing its mojo, the big five have a built-in drag. In my view, that makes the group on average a bit more “regular guy” in performance. Therefore, what I hoped would be some sort of breakdown in the FAAMG-less index ahead of one in the regular OEX was not to be.

Common wisdom says that the performance of the few masks the performance of the many when the market gets narrow in breadth. Thank cap-weighted indices for that deception.

Since the advance-decline and a number of other “regular” breadth statistics did not show much deterioration, I hoped for a clue in the non-regular index. There was nothing there.

You can’t win them all. Not every thesis pans out but I do not regret the exercise. I did learn that the underlying market was stronger than we were told.

We all must still keep searching for the clues left for us by the market and accept dead ends as part of the process. One time, we may just hit one something big. I’m still watching Amazon because I think it is the undisputed leader. If it breaks, then, well, you know.