February ended on a horrendous note for stock markets across the world. The S&P 500 fell into a correction in mere hours. According to the statisticians, this was the fastest fall from an all-time high into a correction ever. Clearly the coronavirus from China created fears that eroded sentiment on Wall Street.

Whether justified or not, the extreme reactions from global governments actually caused businesses to shut down and this will indeed hit company P&Ls (profits and losses).

Today we look at the ‘FANG’ gang to see if there are opportunities to catch falling knives. Typically when we still don’t know all the facts, catching collapsing stocks could be costly. In this case, the companies in question have great transparencies into their financial futures so the risks are quantifiable.

Specifically, Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) are three mega-cap stocks that are fast movers. The goal is to find areas of support on their charts and weigh those against the potential upside opportunities.

The logic could also extend to other companies like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) with the caveat that some supply disruptions will impact hardware sales but not demolish the P&L. It goes without saying that conviction in any thesis without further facts about the virus should be low. Any positions taken this week should be small, thereby leaving room for error.

If those long the stocks have not yet sold, it’s probably too late to panic out of them here. Conversely, if the equity markets find footing and the panic reactions over the headlines abate, then this could also be a decent bullish swing trade attempt for a bounce rally.

Fundamentally cooler heads should prevail, and tactically there should be opportunities to trade the bounces.

Netflix (NFLX)

Netflix stock held up better than most, only down 9% from the recent highs. Perhaps it’s thanks to the thesis that if people are scared of public places then they are more likely to stay inside and watch Netflix instead. The mere whisper of this helped the stock hold up during bloody days on the street. Fundamentally, the long-term story with Netflix has not changed and investors are either fans or haters. This is a battleground stock where there are no in-between opinions.

It is an expensive stock, but as long as it’s growing very fast then it’s not an issue. The ongoing debate between the bulls and the bears is the level of spending that management has committed to producing exclusive content. It’s their hook into growing their subscriber base.

For now it’s working because money is relatively cheap thanks to aggressive global central banks. So for the short-term, Netflix can continue its strategy but eventually this will probably have to change. That alone is definitely not reason enough to short the stock.

After this tizzy passes, the chart shows the potential for upside opportunity. The technicals suggest that the bullish trade is to chase it on a breakout from $392 per share. This would breach resistance and give the bulls the momentum they need to overwhelm the bears. They have been setting higher lows since September so the buyers are still in charge.

It is better to wait for confirmation of the breakout before chasing it. There will be resistance above $375 per share. Investor psyche is bruised and will be easy to disappoint this week, especially if the stock market in general cannot find footing. Netflix should have support above $338, which was the neckline from the last breakout. So it is a matter of risking another 5% loss for the opportunity to ride a 20% rally upon the breach of the resistance lines noted.

Amazon (AMZN)

Amazon stock has baffled investors for over a decade. Fundamentalists and critics fought it for a long time because of its aggressive business model that relied heavily on spending. This is a company that is not afraid of risk but always shows results.

The best example of this is their dominance in the cloud with the Amazon Web Services division. The stock is not a stranger to periods of uncertainty or big corrections, but these have always been opportunities to buy the dip. At least this time it’s doing it for no fault of its own. This massive panic is causing investors to sell all stocks.

So the question here is if investors can trust the support below Amazon and the answer is yes. But that depends a lot on the investor time frame. For the long-term I have no doubt that Amazon will be higher in the future if the stock market is higher. But for the shorter-term there is an additional 13% risk into a support zone. If Wall Street continues its tizzy this week then Amazon could retest $1,600 per share. Although this is not my forecast it is a possibility, at which point it would make a bargain of a trade.

Like Netflix, Amazon stock also has upside triggers. It goes without saying that if the bulls can push it above its highs they can rally into thin air. Momentum traders like to buy high and sell higher, so they wait for the breakouts and chase them even if it looks too late.

This is premature talk since the first order of business for the bulls is to stabilize and beat the resistance that the stock has to overcome. The ledge at $1,980 is now forward resistance and onus is on the bulls to overcome it. There is also an open gap to $2,090, but that is another tough ledge to tackle on the way back up.

Patience is key and the charts will provide the roadmap for the next few weeks. Fundamentally, Amazon is not obviously cheap but among its group it is. This is the ultimate growth stock and even though it sports an 80 price-to-earnings ratio, it sells at only 3.3 times its sales. That is cheaper than Apple, 50% cheaper than Facebook, 70% cheaper than Roku (NASDAQ:ROKU) and ten times cheaper than Shopify (NYSE:SHOP).

Using the right metric is only fair and for Amazon it is price-to-sales. Because profitability is not as important especially when they have proven to Wall Street that they can turn the profits on and off as they please. Case in point: the 15% rally reaction to their most recent earnings.

Facebook (FB)

Facebook is the scapegoat for all that is bad about electronic privacy issues. They brought this upon themselves with the Cambridge Analytica debacle of 2018. But in reality neither the platforms users nor the advertisers cared much about it. It is more of a political talking point that provides a lot of headlines and not a lot of impact on the actual business yet.

Facebook is an advertising behemoth and their clients love them. Almost the whole world is on the platform. They sport over two billion active users. That’s hoards of eyeball potential that they can monetize, and boy, do they ever.

In addition, Facebook has multiple platforms with billions of users each. Such massive potential is almost impossible to ruin. There’s going to be talks of breaking the company apart and litigating the field. Microsoft went through similar tribulations way back then and turned out fine. The U.S. is not going to damage its star companies beyond repair.

Meanwhile, the topic makes for good headlines. It is easy to forget that only a tiny fraction of Facebook users are Americans. We are a nation of 300 million versus the billions who use it outside. So what seems important here doesn’t really matter everywhere else. In other words, investors should not let the media sway the opinions on the quality of this company.

Fundamentally this is a cash making machine with a strong chart. The buyers are still in charge for as long as it’s setting higher-lows. So there is support above $173 per share, versus the unlimited upside opportunity for the long term. On the way back up there will resistances into recent ledges like the ones at $195 and $205 per share. So the prudent thing to do is not get overzealous and watch the change in sentiment. It is always okay to miss the start of recovery rallies even when dealing with the gang of fang stocks.

In summary, great companies got hit very hard over headlines that may or may not turn out to be as dangerous as they seem now. As the old saying goes, “this too shall pass.” More to that, governments will throw all the money necessary at the problem to offset the negative business impacts. Eventually Wall Street will find footing and buy back into the wary shares they sold out of in panic.

For the short-term, and until we get more clarity and actual facts about virus kill rate and transmission speed, the coronavirus will hog the headlines and cause whip saw action in the ticker tape on Wall Street. Caution is more than warranted.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.