A stock that's done nothing since early February could be the key to the stock market's fate. That stock is Meta Platforms (META) . Way back on February 2nd, META gapped to new all-time highs post earnings and continued making new highs for two more months.
It then gapped lower in April (again after earnings), pivoted, rallied, and made another marginal new high again in July...
and then has pulled back once more. That's a long-winded way of saying that META has been trapped within a long trading range or, in technical parlance, a rectangle pattern. A rectangle formation, especially a big one like this, can end up being either a continuation pattern or a reversal pattern.
In fact, every kind of digestive phase eventually leads to the continuation or the reversal of the underlying trend. META's breakout and breakdown attempts over the last six months have failed to garner any follow through. As such, it isn't worth guessing until there's a definite move.
At some point one side will give way and META will experience an outsized move. It went through a very similar process from July – December'23 before breaking out. The direction of its next inevitable break very well could influence the S & P 500 from here.
META is by far the biggest component within the XLC Communication Services ETF with a weight of 22%. The two classes of Alphabet's stock, GOOGL and GOOG, together make up another 21%. But XLC has been much more aligned with META over the last few years.
In September 2021, META topped. The XLC followed. In early 2023, META bottomed, and XLC followed.
None of this is too surprising, but META and XLC are closely aligned with the S & P 500 , too. Indeed, the XLK Technology ETF has a much bigger weighting in the S & P overall. But as this chart shows, the S & P 500 hasn't veered too much from XLC or META in 2024.
With so many technology-specific names falling a lot more than the S & P 500 has lately, it's obvious that other areas have helped the index avoid even more pain. Indeed, that includes the safe havens like Real Estate, Utilities, Consumer Staples and Healthcare. META is 7% from its highs, and, more importantly, it hasn't broken any major support zones or triggered a bearish pattern yet either.
The bottom line is that if META can continue to hold, it would help the S & P 500 stay afloat. Further, META has displayed relative strength vs. XLC and every other MAG 7 stock since the S & P 500 last made a new all-time closing high on July 16 th , 2024.
And if the market is back to its up-trending ways soon, META could be one of the first to make new highs again. -Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: (Owns GOOGL) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium.
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