Wow, what a beating the market took on Wednesday. The closer we got to the market’s 4 p.m. ET closing time, the more panicky investors were getting. It led to a huge selloff and FANG stocks were no exception.
Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) are known as the FANG stocks and when we include Apple (NASDAQ:AAPL), the group commands a tremendous amount of market dollars.
Between Apple and Amazon alone, we’re talking about nearly $2 trillion in market cap value. Anyway, these names couldn’t escape the 831 point beating in the Dow Jones Industrial Average, the 3.3% fall in the S&P 500 and the 4.4% decline in the Nasdaq.
Give credit to Facebook where credit is due. While FANG stocks were getting smeared and making new multi-month lows, FB was actually holding up okay. I say “okay” because it didn’t take out its April lows from the Cambridge Analytica scandal.
If it loses this level and has a poor earnings result later, then FB stock is in big-time trouble. But until those lows are taken out, Facebook doesn’t look terrible.
Don’t get me wrong, the recent action hasn’t given me a ton of confidence in the name, as support has continually given way. The after-market lows — highlighted on each chart by a green line — took out the $150 level. But even then, it basically just hit the exact low from April.
So how do we trade it? Investors who want to go long Facebook, they can do so with the April lows nearby. A close below this mark would be an issue and I wouldn’t stay long FB stock below this mark.
Amazon is a much healthier company than Facebook at the moment. The economy is strong and online sales should do well this quarter. Prime memberships remain robust, its advertising business continues to grow and its cloud segment is a market leader.
What’s not to like?
Well, bulls probably didn’t appreciate the $115 decline in the share price Wednesday. The after-hour lows came into play around $1,709, ironically where the 38.2% Fibonacci retracement for the year currently rests. That’s also near the lows from when Amazon reported earnings back in July.
In any regard, aggressive investors might consider buying near this $1,750 level. I would wait though, as investors may get a better opportunity throughout the next few trading sessions.
Call me too conservative, but I’d love to see a dump in this name down to the $1,600 to $1,650 level first. Down near the 200-day and a strong level support, I’d love a crack at this big-time winner down here on market-wide weakness.
Unlike some of the stronger FANG stocks on the list, Netflix doesn’t have the strongest balance sheet in the world. In fact, because the company spends so much on content, it has massive free-cash outflow. The company plans to spend about $8 billion on content this year despite generating just $16 billion in sales for 2018.
That’s important, not only from a financial health standpoint, but amid this so-far mini-market correction. Because the pullback is being fueled by a rise in interest rates, the fear is that debt will continue to get more expensive. That creates a direct issue for a company like Netflix, which uses debt to fuel its content strategy.
Will that make NFLX stock less attractive as we go? We’ll see, but it will depend on what the market does and where interest rates go. In my view, that will drive NFLX more than the other FANG stocks.
As for the charts, Netflix is teetering right on its 200-day moving average. If it loses that, its after-hours low of $317 is on deck … not that it’s a strong support beam to stand on. Should we get further weakness — and I know it seems extreme — but be open to a decline to the $275 to $285 area.
In there, we’ve seen previous support and it’s also where the 61.8% Fibonacci retracement for 2018 sits. $300 could also act as support if the market is close to a bottom but has a little more downside left.
Alphabet made an ugly, ugly move right through the 200-day moving average. That likely blew out a lot of stop-loss orders for investors and drove shares lower into the close.
Admittedly, the charts look a tad crazy here, but that’s what happens when we zoom out a little bit. Trend-lines and levels emerge and make things look complicated. But notice the easy-to-spot stuff.
Things like, the $1,000 level, which should be support, and the $1,200 level, which has been resistance. Then there’s a convergence of potential support levels — ranging from uptrend support (blue line), level support near $1,055 and the backside of prior downtrend resistance (purple line) — all hanging out near this $1,050 to $1,060 area.
On a further breakdown, I would love to add to GOOGL here.
Look to see not only how GOOGL handles a rebound back to key levels like the 200-day moving average, but all FANG stocks. For instance, see if AMZN struggles with the 100-day or how NFLX does with the 50-day. Basically, these stocks need to reclaim the key levels they broke down from. If they can’t, trouble may still lurk.