Time to revisit the FANG’s

November 19, 20186 Comments

Brooke Thackray (Alpha Mountain) told me a funny, yet not so funny, story about an encounter he had with a fellow on the beach when he was on vacation. The man approached him after having identified Brooke from his media work. Of course, he immediately started talking about the markets. Brooke mentioned something about  a few of the sectors he was holding in his portfolio – and the man countered him with this statement: “I don’t diversify any more – all of my money is in the FANG’s and I’m making a fortune”.

Brooke and I share a similar background in that we have been in this business for the better part of 30 years. This timeframe has afforded us to witness similar attitudes in the past by investors who become enamored with a particular segment of the market. We can both recall the “just buy small capped stocks” era of the early 1990’s, the “just buy technology” era of the late 1990’s, the “just buy income trusts and REIT’s” mentality of the early 2000’s, and finally the “just buy oil” mentality of the 2005-2008 timeframe. Each of those era’s lead to a correction. Some of these sector selloffs resulted in broader corrections – such as the 2000 stock market crash and the 2008 market crash. Sometimes the sector itself was hit – while other sectors rose around it. For example, the small capped mining stocks got hammered in the 1990’s while the rest of the market experienced its best returns in history. The income trust sector was hit in a pretty isolated way in 2006, yet the broader markets rose strongly into 2007. Known as the Halloween Massacre – in October 2006, Canada’s minister of finance, Jim Flaherty, announced that all income trusts would be taxed in a similar manner as corporations at a rate over 30% on taxable income, causing unit holders’ values to decrease dramatically.

Currently, we are witnessing a minor rotation out of the FANG stocks. Does this rotation signal the end to another era of “just buy…X” mentality? Will the selloff result in a broad based bear market? Time will tell. Follow the charts before making a future prediction.

As I have noted on this blog I will not call a danger signal on this market until and unless the S&P 500 cracks its February low of around 2530. Meanwhile, I thought I would post some updated charts on the FANG’s to see just how bad the damage is to these stocks. Hold, fold, or dig for gold is the question I hope to address today.

Facebook

Fold. Any questions? If so, please refer to my book Sideways and read the chapters on identifying trends. This is a downtrend. Next chart, please.

Amazon

Hold. Amazon is still well above its prior significant low on the weekly chart. It, like many stocks, has broken its 200 day SMA—but the primary trend (via peak/tough observations) is intact. This stock is blowing off its parabolic move in 2017.

 

Apple

Hold. Apple’s mid termed and long termed trends are intact. Its only just now blown through the 200 day SMA. New buyers should wait for stability before entering.

 

Netflix

Hold. Primary trend is still intact. It looks like lots of charts these days – and it hasn’t broken its prior significant low.

 

Google

Google is getting close to its prior low of $1000. Trend is intact – but watch the chart for a breakdown. You don’t want to see a Facebook breakdown on this, or any of these charts.

 

 

Conclusion

Nothing to see here, folks. Move along now. Yes, the FANG’s are selling off along with everything else. Add in the fact that they were the most overbought stocks of the goofy 2017 markets, you have a greater reason for a pullback on these stocks than many other players. Facebook is the only truly broken chart. Twitter – which is not a FANG member and not posted today – gets honorable mention as another well followed stock with a broken chart.

Watch for the lows on the weekly chart to maintain. So long as they do – we are still in the “era” of the FANG’s. It will end someday.  However…as is said…the trend is your friend ‘til it ends.

6 Comments

  • Great analysis,
    I understand your charts and look to those for some guidance.
    One thing that I heard is that approx. 90% of the trading is done by Algorithmic trading (automated trading, black-box trading). I wonder how much of a danger this can be for the market. These machines move at the speed of light, and I get the feeling they are all programmed based on momentum up or down. This really takes away from human trading, and I feel I am at a big disadvantage. Keith, can you please elaborate on what these black boxes affect the market.
    Thank you for a great blog

    Reply
    • Too funny!
      The “just buy CDN banks” era will end when Canada gets back to a business friendly government, inspiring the growth of new industries and new investments- rather than an exodus. And that’s at least a year away…

      Reply
  • Could you send me a semi-log sheet that you use for plotting stocks. I currently use linear graph paper which has worked reasonably well.

    Reply
    • I don’t use graph paper to manually draw charts. I use online services that can be optimized via semi-log measurement–one such is stockcharts.com that you could use for no cost – although the historical data is very limited – or freestockcharts.com which gives you much more extensive history–both offer semi log charting.

      Reply

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