Another day of declines has been making some noticeable marks on market-leading stocks that now have some deeper implications in terms of potential declines. This, all ahead of Facebook Inc (NASDAQ:FB) disappointing the market with a weaker outlook than shareholders would’ve liked.
The decline in some of the larger stocks has a telling story, as it indicates that the market is starting to cash in games on some of the relative strength leaders, namely those companies that are the heavy hitters in the Nasdaq 100 Index, which has led the broader market higher.
This in mind, we’re looking at Facebook, Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) as all three have fallen prey to opportunity sellers as volatility continues to increase.
Facebook Inc (FB)
Facebook shook the Street after the close on Wednesday as it announced a concerning outlook for its ad load for the coming year. This news overshadowed the otherwise stellar earnings report that beat analyst expectations.
Shares traded more than 8% lower in after hours as traders rushed to cash in on a powerful pre-earnings rally that saw Facebook shares rally more than 8% against the broader market move of 1.5% ahead of the earnings report.
Technically, the charts are broken as Facebook will open trading below multiple technical support figures.
First, Facebook breaks through its 50-day moving average and will start the morning trading just above its 200-day trendline. A break of both trendlines will send even more technical traders to the pits to sell.
Second, Facebook pierces its lower Bollinger band on an open below $126.50. This is indicative of additional volatility as the market will react to price moves that are well beyond the normal distribution for the stock. Typically, a move like this will start a selling frenzy, meaning that it’s not time to try to catch this falling knife.
Long-term investors may look to bite at Facebook at the $100 to $105 level as this is the site of the stock’s 20-month moving average.
Amazon.com, Inc. (AMZN)
Like Facebook, Amazon had a disappointing earnings report last week. The fundamental disappointment sent the shares to their 100-day moving average, immediately. Since then, the shares have tried to consolidate on moderate volume, but as of Wednesday’s close this trendline has failed.
The technical failure puts Amazon.com at risk of another round of selling as the market will judge the last week as a dead cat bounce rather than a successful test of an intermediate-term trendline.
In addition, for the second time in a week, Amazon.com shares will breach their lower Bollinger Band. We talk about this often as it is a sign that a stock is acting “out of sorts”, which causes the market to react by selling. This being the second break in a short period makes the likelihood that Amazon is headed dramatically lower higher.
Or now, like Facebook, the shorts look to remain in charge of Amazon.com shares meaning that the bulls are more likely to lose fingers trying to catch another one of the Nasdaq 100’s falling knives.
Alphabet Inc (GOOG)
Another sell the news situation stock that is affecting the market is Alphabet, whose shares are trading about 6% lower than their post-earnings highs. This represents another sign of traders getting out of the way of market volatility by selling their winners to book profits.
Alphabet’s tumble has now breached the 50-day trendline for the first time since July. The break of this important trendline comes on moderate volume which is likely to increase as more sellers get triggered by the potential “end of a trend.”
Momentum on Alphabet shares is shifting into a negative pattern for the first time since early 2016 when share were controlled by the sellers. Of the top technical patterns, Alphabet shares are one of the heaviest recommended on Wall Street as 94% of the analyst with a rating on the stock have it as a buy. This is significant as it signals an overloved status for Alphabet that will make it hard to avoid seeing selling pressure as an effect of being a crowded trade.
For now, Alphabet shares show potential chart support at $720, nearly 7% from Wednesday’s close. From there, a $700 print would represent a long-term buying opportunity for the bulls.
Until then, volatility and selling pressure are likely to drive Alphabet shares lower.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
