Are The Generals Next?

Who are the "generals" in the stock market? They are the mega-cap names that make up a significant portion of the market (S&P 500 & NASDAQ).

These include names like AAPL, MSFT, AMZN, GOOGL, and TSLA as they represent about 20% of the NASDAQ and the S&P 500. 

While the majority of stocks have been in bear market for months (down 20% or more), the "generals" have been holding up relatively well. But, for how much longer? And if they start to get sold, how far can they fall? 

These stocks have been relentlessly moving higher since the 2020 lows with very minor drawdowns or corrections. Investors have been rewarded for buying every minor dip.

But what if the latest dip in the generals doesn't get bought and these widely held winners become a source for investors to raise cash? 

As I've shown in past blog posts it's common for individual stocks to retrace at least 50% of a rally from a very obvious bottom. I think it's safe to say that the 2020 low was an obvious bottom so lets take a look at what a 50% retracement would look like in AAPL, MSFT, and GOOGL

AAPL

Currently AAPL is only down 12% from it's all time high. A 50% retracement would put Apple stock at $118. That's another 25% lower from its current price.

MSFT

So far MSFT is in correction territory down 20%. A 50% retracement would put MSFT at 241. That's another 12% lower from its current price.

GOOGL

Currently GOOGL is down 15% from it's all time high. A 50% retracement would take GOOGL all the way back near 2000. That's another 20% haircut from its current price.

No one knows for sure if these stocks will complete a 50% retracement and if they do, how it occurs is another thing entirely. But I do know with the NASDAQ making new lows the path of least resistance is to the downside.

If the selling starts to accelerate in the generals, the impact will be felt across more sectors and industries as the rush to raise cash creates even more selling.

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Nothing in this blog post should be considered investment advice and is provided for educational and entertainment purposes only. The commentary and information represent the opinion of the author and are not recommendations to buy or sell any security or investment product. The author may or may not hold positions in the securities and investments mentioned. Full disclaimer here.