Key points:
- Watching the 50d and 200d SMA and their crossing points is an easy and simple way to assess the likelihood of a trend’s acceleration or reversal.
- Trading volumes are key: if volumes spike at the crossing point, a reversal is likely; if volumes stay low, the trend may accelerate.
- Applying this to the Magnificent 7: MSFT, AMZN, GOOGL, and AAPL appear bullish, while NVDA and META lean bearish. TSLA remains uncertain due to external volatility.
The Magnificent 7 Stocks: Analyzing Recent Sell-Offs and Market Trends
The Magnificent 7 stocks—MSFT, AMZN, GOOGL, AAPL, NVDA, TSLA, and META—have experienced some of the biggest declines in the recent market sell-off. This is a typical pattern in stock market behavior. After leading a multi-year rally, top-performing stocks often see sharp corrections as investors take profits.
Key Technical Indicators: Moving Averages and Golden Crosses
A common tool to analyze trends is the simple moving average (SMA), particularly the interaction of the 50-day and 200-day SMAs. These help identify potential support and resistance levels, particularly when they form a Golden Cross (when the 50-day SMA crosses above the 200-day SMA) or a Death Cross (when it crosses below).
For more precise analysis, some traders prefer exponential moving averages (EMAs), which weigh recent data more heavily and respond faster to market changes. However, SMAs are easier to calculate and widely accessible, making them ideal for rapid analysis.
The Role of Trading Volume in Identifying Trends During a Bear Market (like now)
Volume is a critical factor in analyzing Death Cross patterns:
Rebound Signals in a Bear Market: In a down market, rising volumes near a Death Cross can indicate that buyers are stepping in, potentially creating a bullish trend.
Continuation Signal in a Bear Market: If trading volumes remain low near a Death Cross, it often signals that the downward trend will accelerate.
Analyzing the Magnificent 7 Stocks
Our analysis of the Magnificent 7 stocks reveals mixed signals:
Primed for Rebound: MSFT, AMZN, GOOGL, and AAPL show early signs of increased trading volumes, suggesting they may be poised for a recovery.
Weak Profiles: NVDA and META exhibit declining trading volumes, with little market interest in establishing a support level, indicating potential further downside.
Unclear: TSLA presents unique challenges. Headline risks heavily influence its stock, including its CEO Elon Musk's political exposure and its effect on the car maker’s brand value. This makes technical indicators less reliable for predicting TSLA’s movements.
Stock-by-Stock Analysis
- AAPL – Apple 50d SMA is close to touching the 200d SMA from the top and could form a Death Cross soon. However, volumes seem to start forming a bowl-shape recovery over the past month which could anticipate 50d SMA would touch the 200d SMA with rising volumes, tilting the stock price’s likelihood towards finding support and rebounding.
- AMZN – Amazon is further away from a cross between the 50d and 200d SMAs. However, its traded volumes seem to be recovering lately after a few years of downward trend. Albeit the wide gap limits the predictability of the SMA analysis, however, as long as the stock stabilizes, there is a relatively healthy chance that the SMAs would converge as they filter the December-to-February spike-and-drop. If that convergence happens, and volumes continue to increase, the stock could be primed for a bounce back.
- GOOGL – very similar to AMZN – the SMAs have room before they cross, and volumes seem to be recovering. However, as long as the stock remains stable, the mathematics of moving averages will lead to a convergence as the SMAs filter the spike-and-drop of the last 3 months. If volumes remain supportive, that convergence could signal a likey rebound.
- META – Meta’s most notorious trend is a sharp and continuous drop in traded volumes. The SMA lines remain relatively apart, perhaps because the sharp drop (from about $740 to $570) in the last month has still to be filtered into the signals. As a test, we analyzed the patterns using EMA to capture the latest price movements, and note that on an exponential basis the Death Cross formed around March 10. As we’ve seen before, the clue remains in trading activity – if before forming an SMA Death Cross traded volumes recover, the Cross could signal support rather than snowball. Alas, if volumes remain subdued, the Cross may signal a break in support with further downside from there.
- MSFT – Microsoft reached the Death Cross before the rest of the Mag 7 group, sometime in late February. The Cross happened at the tail of a long downward trend in volumes, and unsurprisingly continued to fall with some momentum afterwards. However, and perhaps anticipating the pattern for the rest of the group, volumes seem to be activating. If this higher trading activity persists, the stock could be primed for a rebound with some momentum.
- NVDA – on a pure “SMA + volumes” basis, NVDIA has the most bearish outlook of the group. However, it has been the best performer having gained 350% over the past 2 years. The SMA signals just crossed, with the 50d accelerating downward, while the 200d remains upwards. This Death Cross coincides with a material drop in traded volumes since mid-2024.
- TSLA – Tesla is one of the most challenging charts to read because of the large swings caused by headlines. However, reducing the analysis to SMAs and volumes, we note that albeit the Cross hasn’t happened yet, it is mathematically almost certain, as the 50d average will move through the up-and-down between November and February rightwards in the chart relatively soon, while the 200d is much slower, dropping the relatively stable-at-lower-prices mid-2024 period with the spike around the new year. Again, the clue is in the volumes. The current trend is a steady decay in trading activity since early 2023. If this trend continues, the Death Cross would likely accelerate the bear market for the name (more likely). However, if enough traders see the stock’s drop as the opportunity to buy at a more attractive entry point, the rebound could gain momentum fast (less likely). A caveat: with Tesla, technicalities are poorly predictive, as the stock price is strongly driven by fundamental news about its business, as well as a fallout from its CEO’s active political presence.
