For quite some time, Jim Cramer and Bob Lang have discussed the FANGs, a group of stocks considered leaders: Facebook (FB), Amazon (AMZN), Netflix (NFLX) and the stock formerly known as Google.
Lately, the acronym has bloomed to encompass more and more names finally, hitting a crescendo yesterday with FARTMAN. This is Facebook, Amazon, Regneron (REGN), Tesla Motors (TSLA), Microsoft (MSFT), Alphabet (GOOGL) and Netflix. After looking at this group over the last six months of trading, I've come to the conclusion that using FARTMAN stinks.
Don't believe me? Let's take a visual tour of this group over the last six months and you can see for yourself. I don't know about you, but visual is the only one of the five senses I want to use here.
First off, let's look at the Attack of the Acronyms price performance of FARTMAN vs the SPDR S&P (SPY) over the last six months. While I've done some data diving here, given the newness of the acronym I am still calculating correlations and the Relative Strength Index (RSI). But after looking at these charts, I'm pretty sure I can guess what those results will be. I've run equal-weighted and dollar-weighted versions of FARTMAN on this chart and adjusted the value of the SPY, so these three start at very similar values.
Over the last six months, it is clear FARTMAN has performed much better than the SPY. The dollar-weighted version of the stinky acronym performed slightly better than the equal-weight version, but the difference between the two has been minimal. What stands out to me is not the outperformance, but the lack of any predictive value towards the broader market. For instance, take a look at mid-July when FARTMAN exploded higher. You would expect the broader market to follow suit, but the performance of lagged behind. In fact, the SPY, after a very small push higher, faded right back to where it sat when FARTMAN made its large movement. There are plenty of times where we see the prices moving together, but simultaneous movements are simultaneous, not predictive.
And about that performance, it is clear to see FARTMAN has blown away the SPY over the past six months. The group is up 30+%, whether equal-weighted or dollar-weighted, against less than 2% for the SPY. In fact, the group has stayed positive since day three (it was down on the second day), while the SPY has spent the better part of the last two months in the red. Again, I see little predictive value here. If anything, the SPY is more predictive of FARTMAN than the other way. Sure, FARTMAN blasted higher off the late September lows, but the SPY actually turned higher before FARTMAN. In early August, FARTMAN made a new high in a failed attempt to breakout while the SPY made no such new high. Every other move either occurred together or FARTMAN moved while the SPY did little. Again, affirmation FARTMAN offers no predictive power.
Don't like the line charts? How about we try a look at a radar view of the daily moves. If FARTMAN is to have any predictive powers or influence, then a spike by either the grey or blue line should be followed a spike in the orange line at a later date. Again, it simply is not there. These lines move together with FARTMAN just experiencing outsized moves. Why? These are volatile names heavily weighted in many ETFs.
If you want to follow the FANGs or FATMAN or FARTMAN for their entertainment value, then be my guest. If you want to invest in them as a group of stocks which has shown significant strength over the last six months with the understanding this is a group that experiences large moves compared to the SPY or even the Nasdaq, I would understand. But if you are using FARTMAN as a gauge of market strength or as a measure for what you believe the market will do next, then you are simply ignoring data.