Bare Your FANGs: 2 Blue-Chip Tech Stocks to Buy, 2 to Sell

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“FANG” stocks was euphemistically coined by Jim Cramer to reference Nasdaq tech blue chips Facebook Inc (FB), Amazon.com, Inc. (AMZN), Netflix, Inc. (NFLX) and Alphabet Inc (GOOGL).

Blue Chip Stocks
Source: ©iStock.com/MariuszBlach

You may have guessed correctly that the FANG acronym has been around longer than the name change by Google to Alphabet earlier this year — though the tickers of the four Nasdaq tech blue chips still correctly keep FANG in good order.

What’s not in good order right now is necessarily the simple act of buying the FANG group of tech stocks without the potential for greater-than-average risk to the portfolio.

Right now, these four blue-chip tech stocks are in very, very different places, thanks to earnings announcements, chart movement and other factors.

All told, a pair of these FANG stocks look like good long plays right now, while the other two are best left alone or played short.

Let’s take a look:

FANG Blue-Chip Tech Stocks: Facebook Inc (FB)

FB stock chart daily
Click to Enlarge
Source: Charts by TradingView

In early November, Facebook bested Street top- and bottom-line views and went on to further please analysts with all its eyeball and keystroke metrics dished out on its conference call.

The report resulted in a gap bid to fresh all-time-highs following FB stock’s recent breakout from a first base structure. Facebook’s base count was reset after the Aug. 24 flash crash caused the price to undercut a prior weekly base, shown in the accompanying chart.

Resets like the one found in FB stock are healthy. The pseudo-bearish action acts as a temporary way to rid a stock of excessive bullishness and why bases which develop after a reset are given a clean slate of sorts.

Technically, a pullback into the $96-$100 area would allow for a constructive 10%-13% correction in this tech stock, blue chip. The expectation is FB stock will find support in this area as it comprises its breakout area, as well as the 50-day simple moving average and 38% Fibonacci retracement level.

A below-market Dec $97.50-$95 bull put spread priced for 50 cents is one way to “like” FB stock on a pullback to $97 while maintaining a max loss of just $2 below $95 if bulls collectively decide to “unlike” Facebook.

FANG Blue-Chip Tech Stocks: Amazon.com, Inc. (AMZN)

FANG Blue-Chip Tech Stocks: Amazon.com, Inc. (AMZN)
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Source: Charts by TradingView

But to be quite honest, Amazon stock has gotten ahead of itself. Despite Amazon’s seeming world domination in all things retail and substantial profit and sales beat, AMZN stock is really, really expensive!

To take advantage of AMZN stock being attacked by bears rather than airlifted by fanciful armies of bullish droids, the Jan $615/$600 bear put spread for up to $4.50 is attractive.

To capture the full profit potential of the spread of $15.50 or better; AMZN stock will need to lose about 6% at January expiration. That’s still about $35 higher than its earnings-fueled liftoff near $565, so the trader is only in need of modest profit taking.

AMZN stock at $600 isn’t a guaranteed overnight delivery, but we like the looks of our spread package bringing home the profits in this bearish trade sometime before January expiration.

FANG Blue-Chip Tech Stocks: Netflix, Inc. (NFLX)

FANG Blue-Chip Tech Stocks: Netflix, Inc. (NFLX)
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Source: Charts by TradingView

Ironically, over the last several weeks shares of this FANG stock have gone down, up, down, up and back down again — and find NFLX stock at nearly the exact spot when I penned that piece and situated at the prior apex line of the triangle.

What’s more, NFLX stock has gone on to produce a sequel of sorts by establishing a second larger symmetrical triangle. Given an earnings report which was mixed to disappointing and did nothing to dispel NFLX stock’s expensive (and getting pricier) valuation, this one is still a short!

Given the larger pattern in NFLX stock, the price break should create an even larger bearish opportunity in this clue-chip tech stock. But given we’ve gotten through the historically bearish September/October period, I’m willing to compromise and maintain my original price target of $75-$80 in shares of Netflix.

With NFLX stock at $102.45 and just above a looming breakdown, the Jan $100/$85 bear put spread is priced for $4.60. If purchased, a return just north of 225% is possible with NFLX stock below $85 at January expiration.

The required move to maximize the bear vertical’s profit potential amounts to a retest of the Aug. 24 low in NFLX stock and is placed somewhat conservatively above the stated $75-$80 objective. However, that is still a drop of 17%, so if given the opportunity to at least cover one’s cost in the interim, do so — that makes for good cash flow practices.

FANG Blue-Chip Tech Stocks: Alphabet Inc (GOOG, GOOGL)

FANG Blue-Chip Tech Stocks: Alphabet Inc (GOOG, GOOGL)
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Source: Charts by TradingView

Overall, there’s still a lot to like about GOOGL stock’s chart. The fact is GOOGL has put in a good deal of consolidation work over the last two years as it has moved higher by roughly 50% from a long lateral formation followed by a base-on-base symmetrical triangle.

There’s also Alphabet’s earnings beat and increasingly solid cash position which investors were plenty happy with following a report which vaulted GOOGL stock to record highs.

For positioning in this blue-chip tech stock, a GOOGL out-of-the-money bull put spread can help traders define an entry point to pick up shares that they’re comfortable with, limit the position’s risk to a defined amount — or potentially pick up income in the interim if the trader remains unassigned.

Shares of Alphabet are near $740 and technically are seeing the $680-$700 area as a nice targeted zone to pick up shares of this FANG stock on a pullback. So, for now, the GOOGL Dec $690/$680 bull put spread for $1.20 fits in well with that objective.

This vertical allows the trader to effectively purchase Alphabet at $688.80 or collect the credit and look to roll into another vertical if shares finish above $690. Further, spread risk is always limited to $8.80, which is barely more than 1% of GOOGL’s stock price.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2015/11/fang-blue-chip-tech-stocks/.

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