Frank Cappelleri discusses FB, MSFT, and IWC
Last Wednesday, one of my favorite technicians, Frank Cappelleri, was on Bloomberg to discuss three charts: Facebook (FB), Microsoft (MSFT), and Micro Caps (IWC).
Regarding Facebook, Frank starts off by pointing out a pretty interesting statistic that I wasn’t aware of, in that “Since the beginning of 2018, Facebook has had 18 different gap openings of 2% or more.” Wow. I think that’s pretty impressive. He goes on to put these gaps in context by saying this is a clear sign that investors and the company (what Facebook itself is saying, reporting, etc.) are on totally different pages. Frank also notes that this needs to change going forward, particularly if we want to see any type of sustainable move higher. While he discusses Facebook’s Daily chart in the video linked above, here is a view of the Weekly chart:
Given this expanded view, I am currently bullish on Facebook, as we have seen three positive developments lately: 1.) A failed breakdown below the 2016 highs, 2.) A positive divergence on RSI between the latest two lows, and 3.) From a short(er) term perspective, we are back above the prices levels we saw this past October.
Next, Frank discussed one of the most popular Tech names in Microsoft. Something very interesting that he points out is that this stock was essentially a “safe haven” in this sector in 2018, a place to still have exposure to Tech, but without the volatility of other names. He notes this by pointing out the relative strength of Microsoft against its sub-industry grouping which is Software (IGV). As this relative strength has waned recently with the pick-up in the overall performance of Technology (XLK) and Software, should we be looking to other stocks that could add more alpha? I agree with Frank here and believe a prudent move would be to start looking at more aggressive, volatile names in the space. Why do I agree with Frank? given the chart below, I see Microsoft’s underperformance continuing, as its trend of outperformance (going back to 2016) is beginning to breakdown and the RSI of the relationship has sunk below 30. The chart really began to roll over quickly once we hit the near-term bottom on Christmas Eve. Since then, we’ve seen better returns from other names in this space.
Lastly, Frank brings us to a chart of Micro Caps (IWC), which is also one of my favorite areas of the market to keep an eye on. I believe he correctly points out this group is a great indicator of “risk” sentiment in the market, in that we want to see Micro Caps outperforming the broad market. So where do we currently stand? Let’s take a look…
On a relative basis, we are back to the same lows we saw in 2009 and early 2016. If history was to repeat itself, which is not a given, we would see Micro Caps produce better returns than the S&P 500 over the coming months. If this does indeed come to fruition, it’s a positive sign for equities as a whole.
Overall, I think Frank Cappelleri does an excellent job and is spot on with his analysis. Facebook is indeed showing strength lately, but traders and investors really need to get in tune with what is truly going on regarding the company. There have simply been too many “surprises” over the last year. Second, when looking for relative strength going forward, there are probably better stocks to find in the Tech/Software space than Microsoft. And lastly, seeing Micro Caps trending higher against the S&P 500 will create a very positive signal for the stock market.