Yesterday, we discussed the breakdown in Tesla Motors (TSLA), which was a top performing stock last year and for most of this year. It's worrisome when a market leader breaks down, but one stock alone doesn't make a market. Unfortunately, Tesla is not alone. There are a number of former leaders that appear to be on the verge of a breakdown, and their charts have some eerie similarities.
Take Google (GOOGL) for example. Like Tesla, Google is well beneath its 200-day moving average (red) and has also received a recent sell signal from its moving average convergence-divergence (MACD) indicator (shaded yellow). Instead of a head and shoulders, Google has formed an odd topping pattern that resembles a cross between that pattern and a double top. The stock has also experienced a death cross (arrow). If Google breaks below $518, it'll likely fill a gap left over from October of 2013, pushing the stock down to $450.
Google (GOOG) -- Daily
Source: TradeStation
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Notice also how Google's MACD indicator has not only given a sell signal, but has formed a series of lower highs as well (H-LH-LH). That's an ominous pattern known as bearish divergence, and it suggests a further decline is in the cards for Google.
Netflix (NFLX), another former market leader, is in a similar state. This stock is well under its 200-day moving average (red), which has crossed beneath its 50-day moving average (blue), forming a death cross. Netflix broke beneath its bullish trendline (black dotted line) in mid-October and has managed only a meager bounce since then. Like Google and Tesla, Netflix recently received a MACD sell signal (shaded yellow) and is experiencing bearish MACD divergence (H-LH-LH).
Netflix (NFLX) -- Daily
Source: TradeStation
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Finally, Priceline.com (PCLN), yet another leader that has fallen beneath its 200-day moving average (red), has experienced both a death cross (arrow) and a MACD sell signal (shaded yellow), and is experiencing negative divergence with its MACD indicator (H-LH-LH).
Priceline.com (PCLN) -- Daily
Source: TradeStation
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What does it all mean? Technically, we are still in a bull market, so it's hard to be overly bearish. On the other hand, there is no way to rationalize the fact that many former leaders are simultaneously falling by the wayside. In order for this bull market to continue, other groups are going to have to pick up the slack. Right now, the top candidates are health care and financials. So, keep an eye on those two sectors, as they may now become bellwethers for the rest of the market.
At the time of publication, Ponsi had no positions in the stocks mentioned.