Buying strength works best when a stock is breaking out from a bullish chart pattern and is already in an established long-term uptrend. That uptrend can be as simple as a stock trading above a rising 200-day moving average. We’ve seen that combination work time and again over the last two years — positive momentum was rewarded, and prior resistance levels were cleared by dozens of stocks and ETFs. But buying strength in a stock that’s spiking under a declining 200-DMA doesn’t offer the same risk-reward profile. That’s exactly the setup for Diamondback Energy (FANG) right now. FANG is currently working on its ninth straight daily gain and is tracking to be up in 13 of the last 14 sessions. And, yes, buying at any point along this run would have been profitable. But from here, we’re a lot more interested in where the stock could be in two-to-three weeks, not just the next few days. One of the best things about using charts is that they help put things into perspective. And from that standpoint, FANG has had three similarly strong multi-week rallies since last June. Each time, the move lost steam after two-to-three weeks, with the stock failing to break through a well-defined downtrend line over the last number of months. FANG is now nearing that same trendline resistance once again. The consistent sell-off over the last nine months have caused the 200-DMA to rollover now, as well, and it’s now in a downtrend, itself. So, does FANG slicing below its 200-day moving average guarantee a long, drawn-out bear market? Not necessarily. But history shows it can be a key warning sign, especially when that moving average is sloping lower. Looking back to 2013, there’s one clear period where a sustained break below the 200-DMA led to real damage—2018. That marked the start of FANG’s worst multi-year decline, which was ultimately exacerbated by crude oil going negative during COVID. While those circumstances were extreme, what mattered technically was this: FANG’s continued failure beneath a declining 200-DMA kept it stuck in a bearish trend. There have been other instances where FANG dropped below the 200-DMA and didn’t collapse(highlighted in yellow). But even then, a clean and immediate uptrend rarely followed. More often, the stock chopped around in a volatile range, and only started trending higher again once it cleared the 200-DMA — and just as importantly, once the moving average itself turned upward. So, what would suggest that this rally is different from the other failed attempts since last summer? Looking back at 2023 and early 2024, FANG went through two other volatile stretches. In both cases, the stock held up better than it has this time around. Still, in both instances, momentum didn’t truly flip back to positive until FANG broke above a multi-month resistance zone. Once that happened, the worst was behind it, and the move eventually led to a very strong advance in the first half of 2024. The bottom line: we need to respect the strength of FANG’s recent multi-week run — but also recognize that it’s happening within a broader downtrend, beneath a major resistance zone, and under a declining 200-day moving average. At the very least, that suggests it’s not worth chasing in the short term. — Frank Cappelleri Founder: https://cappthesis.com Get Your Ticket to Pro LIVE Join us at the New York Stock Exchange! Uncertain markets? Gain an edge with CNBC Pro LIVE , an exclusive, inaugural event at the historic New York Stock Exchange. In today’s dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12. Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles, and Dan Ives, with a special edition of Pro Talks with Tom Lee. You’ll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited! DISCLOSURES: (None) 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. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
