Wall Street is under pressure Thursday as traders react to a surprisingly hawkish Federal Reserve policy decision on Wednesday (another rate hike, one more promised before year end, and a looming start to a balance sheet drawdown), as well as the reappearance of “Trump impeachment” headlines (courtesy of the Washington Post).
As a result, the dramatic selling in tech stocks seen earlier this week and last Friday returned after a feeble rebound rally attempt over the past couple days.
While the broad market has been sliding sideways for months (witness the Russell 2000) as the “Trump-flation” dynamic stalled, all the focus has been on a narrow group of tech stocks carrying the moniker “FANG” or “FAANG” or “FAAMG,” depending on the composition.
Hedge funds and retail investors have all piled into these names, which have been responsible for the parabolic upward move in the Nasdaq Composite, as well as stretched valuations. But now, the froth is coming off, and the bulls are stampeding to be the first to book profits and exit.
Here are five FAANG stocks that could be in trouble thanks to Thursday’s move. Consider them potential targets for at least partial profit taking, as well as quick short plays via options.
Tech Stocks in Trouble: Facebook (FB)
Facebook Inc (NASDAQ:FB) shares are threatening to break down below their 50-day moving average for the first time since the post-election decline on immigration clampdown fears, including skilled H1B programmers tech companies rely on.
Shares had rallied some 34% from their December low into the high set last week; since then, shares have lost nearly 5%. Valuations are trying, with a 25.2 price-to-earnings multiple and just a 3.6% free cash flow yield.
Facebook’s next big (expected) fundamental catalyst isn’t until July 26 after the bell, when it’s expected to report earnings of $1.14 per share on revenues of $9.2 billion.
The one “upside” here: FB’s downside is less than the rest of the FAANG stocks. Watch for a possible move down to the April pullback low near $140, which would be worth a 6% decline from here.
Tech Stocks in Trouble: Apple (AAPL)
Apple Inc. (NASDAQ:AAPL) shares, which rose roughly 50% from their November low on massive iPhone 8 hype, has dropped 8% from its high last week falling away from a two-month resistance level near $155. The 50-day moving average was taken out in the process, putting the 200-day average that hasn’t been touched since last July in play for a possible decline of 11% from here.
The company recently unveiled the “Homepod” smart speaker to a collective shrug, its first hardware release since the Apple Watch. This only raises the stakes for the iPhone 8 unveiling later this year, with the iPhone 6 form factor currently in its third iteration with the iPhone 7. Samsung and others have already innovated on OLED and full-front screens, stealing some of the thunder.
Apple will next report results on July 25 after the close, with analysts looking for earnings of $1.57 per share on revenues of $44.9 billion.
Tech Stocks in Trouble: Amazon (AMZN)
Amazon.com, Inc. (NASDAQ:AMZN), which to great fanfare closed above the $1,000-a-share level for the first time earlier this month, is once again testing its 50-day moving average — a level it last fell below in October.
After a massive ~40% rise from its post-election low, shares are already down 5% and could well be on the way to a test of the 200-day average near $840, which would be worth a 13% decline from here.
AMZN is among the more mispriced FAANG stocks, with a price-to-earnings multiple of 89 and a free cash flow yield of just 2.5%.
Amazon will next report results on July 27 after the close. Analysts are looking for earnings of $1.45 per share on revenues of $37.2 billion.
Tech Stocks in Trouble: Netflix (NFLX)
Netflix, Inc. (NASDAQ:NFLX) has the weakest-looking chart here, testing levels not seen since April this morning suffering a drop of more than 11% from its high last week. Following a 40%-plus rally out of its post-election, NFLX is vulnerable to a drop to its 200-day moving average near $133, which would be worth another 11% decline from here.
Rising production costs, increased competition, and tepid user growth metrics are all poised to weigh on sentiment.
NFLX will next report results on July 18 after the close. Analysts are looking for earnings of 15 cents per share on revenues of $2.8 billion.
Tech Stocks in Trouble: Alphabet (GOOGL)
Alphabet Inc (NASDAQ:GOOGL) shares, which also closed above the $1,000 level to great fanfare earlier this month, has gapped down this morning to threaten a decline below its lower Bollinger Band — something that hasn’t happened on a closing basis since November.
Watch for a break of two-month support near $940, setting up a break of the 50-day moving average ahead of a decline to the 200-day moving average, down 11% from here.
Valuations are trying as well: GOOGL carries a price-to-earnings multiple of 25 and a gross profit to total value ratio of 35% vs. the 46% carried by Microsoft Corporation (NASDAQ:MSFT) during the dot-com bubble. The stock suffered a downgrade from Canaccord analysts this morning on concern recent growth has been driven by ad loan increases on mobile search and YouTube that will be hard to repeat.
Alphabet is expected to report Q2 earnings on July 26. Wall Street expects profits of $8.24 per share on revenues of $25.63 billion.