U.S. equities are diverging sharply on Wednesday, with the Dow Jones Industrial Average creeping higher while the tech-heavy Nasdaq gets hit hard.
No clear catalyst is responsible, with some pointing to possible rotation out of 2017’s year-to-date winners as the speculative herd grows enamored with the rise in bitcoin.
Whatever the cause, the drop is hitting the “FAANG” stocks for their worst one-day loss since February 2016.
To be sure, there are reasons to expect a reversal here. Valuations are extended, breadth is narrow and sentiment is off-the-charts extreme. Put a persistent momentum-driven bid has prevented any price weakness. That could be set to change now, as those trend-following algos flip the switch and pile on to the downside.
Here are the five stocks most at risk:
Tech Stocks: Facebook (FB)
Facebook Inc (NASDAQ:FB) shares are down more than 3.4% in mid-day trading on Wednesday, testing below its 50-day moving average for the first time since October.
Watch for a possible return to the late September lows, which would be worth a near-10% drop from current levels. FB and other tech stocks are presented with a new margin threat should the FCC roll back net neutrality rules, as expected, paving the way for telecoms to extract fee revenue.
The company will next report results on Jan. 31 after the close. Analysts are looking for earnings of $1.91 per share on revenues of $12.5 billion.
When the company last reported on Nov. 1, earnings of $1.59 per share beat estimates by 31 cents on a 47.3% rise in revenues.
Tech Stocks: Apple (AAPL)
Apple Inc. (NASDAQ:AAPL) shares, which have been riding high on iPhone X hype, are at risk of falling out of their month-to-date trading range and reversing the late October pre-sale meltup.
Watch for a decline to the late-September lows near $150 — which matches up with the 200-day moving average — which would be worth a 10%-plus decline from here.
The company will next report results on Jan. 30 after the close.
Analysts are looking for earnings of $3.77 per share on revenues of $86.2 billion. When the company last reported on Nov. 2, earnings of $2.07 share beat estimates by 20 cents on a 12.2% rise in revenues.
Tech Stocks: Amazon (AMZN)
Amazon.com, Inc. (NASDAQ:AMZN) shares enjoyed a Black Friday surge last week — pushing above the $1,200 level for the first time — as brick-and-mortar competitors like Macy’s (M) continue to struggle and the company’s Alexa-powered devices become quite the popular gift item.
The underlying retail business continues to post ultra-tight margins, however, thanks to the fact the AWS cash cow is subsidizing the rest of the company.
The company will next report results on February 1 after the close. Analysts are looking for earnings of $1.83 per share on revenues of $59.7 billion.
When the company last reported on Oct. 26, earnings of 52 cents beat estimates by 53 cents on a 33.7% rise in revenues.
Tech Stocks: Netflix (NFLX)
Netflix, Inc. (NASDAQ:NFLX) shares are down more than 5.4% in mid-day trading on Wednesday, dropping below their 50-day moving average and losing their two-month consolidation range. This could be the start of the first significant pullback for the stock since an unbroken uptrend started in late 2016.
One that resulted in a doubling of the share price. While user growth has been strong, the company faces increased competition for exclusive content, increased production costs, and the looming start of a streaming service by Walt Disney Co (NYSE:DIS).
The company will next report results on Jan. 17 after the close. Analysts are looking for earnings of 42 cents per share on revenues of $3.3 billion.
When it last reported on Oct. 16, earnings of 29 cents per share missed estimates by three cents on a 30.3% rise in revenues.
Tech Stocks: Alphabet (GOOG)
Alphabet Inc (NASDAQ:GOOG) shares are threatening to drop out of a two-month trading range, potentially setting up a return to the mid-year sideways crawl near $920.
That would be worth a near 10% decline from here. The company is once again intensifying its push into hardware, with the launch of the Pixel 2, a bevy of smart devices, and new Chromebooks. But it all feels tired and uninspired.
The company will next report results on Jan. 25. Analysts are looking for earnings of $10.19 per share on revenues of $31.6 billion. When the company last reported on Oct. 26, earnings of $9.57 beat estimates by $1.17 on a 23.7% rise in revenues.
Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
