“The dominance of just seven companies in the U.S. stock market reveals a hidden vulnerability, raising concerns that investors cannot afford to overlook, as these giants’ influence may be a bearish sign for the overall market.”
A group of elite stocks known as the “Magnificent Seven” are sending a concerning message to investors. These megacap technology companies, which include Alphabet, Tesla, and Amazon, have broken below the neckline of a “triple top” technical price chart pattern. This pattern suggests a potential bearish signal for the market.
Technical analysis is often used by stock-market strategists to identify price patterns that may indicate future market movements. While some skeptics doubt its predictive power, it can still be useful in determining important levels of demand and supply.
The “triple top” pattern occurs when a stock or index repeatedly fails to surpass a notable high. In this case, the Magnificent Seven reached their closing high for the year on July 18, but have since tested and failed to break that level twice more. The recent break below the neckline, represented by the 100 level on the chart, is seen as a bearish signal.
However, it’s important to note that the market could still break in either direction. A move higher is still possible if a catalyst emerges to drive stocks up. According to Michael Kramer, a stock-market analyst, if the market holds at the current level, it could become bullish.
Nevertheless, the outlook for the Magnificent Seven and the rest of the Nasdaq is looking grim. The Nasdaq Composite, which includes all stocks listed on the Nasdaq exchange, is falling further into correction territory. The Nasdaq 100 is also on track to join it. This decline is attributed to rising treasury yields and disappointing earnings from the Magnificent Seven companies.
Without these seven stocks, the S&P 500 would be lower year-to-date. These stocks have seen a significant increase in market capitalization, offsetting losses from other companies in the index.
Investors are now awaiting earnings reports from Amazon.com Inc. and Nvidia Corp. to gauge the performance of these elite stocks. Apple Inc. and Microsoft Corp. are also typically included in this group.
Overall, the “triple top” pattern and the current market conditions suggest that caution may be warranted for investors.