Riding the Market Vomit Comet
De-FAANG-ing the Market’s Biggest Winners!
Wall Street’s most popular stocks are getting whacked along with the rest of the market as the correction rolls on, finally engulfing the fabled FAANG stocks: Facebook, Apple, Amazon, Netflix and Google.
Back in early February, I cautioned that volatility has returned to the stock market with a vengeance and that there is “likely to be more downside in the weeks ahead.”
I sincerely hope you heeded that warning because volatility is indeed back in spades, and it’s likely here to stay.
In 2017 the S&P 500 index didn’t move up or down more than 1% for a record number of days. Now the S&P has had four straight days with moves of nearly 2%!
Also recall that the CBOE Volatility Index (VIX), otherwise known as the fear gauge, was trapped below 15 for an unprecedented stretch of nearly six months last year.
But during the February market flop, VIX spiked to 50 for the first time since 2015. And as I write this, VIX remains elevated over 20.
The latest leg lower for stocks this week was triggered by the most popular stocks at the dance, namely the FAANGs mentioned above.
Suddenly, investors are noticing that these stocks are pretty richly valued. And instead of ignoring their blemishes, investors are seizing on them as reasons to SELL with both hands.
Facebook’s (NASDAQ: FB) well-documented data breach triggered a sell-off of nearly 25% in its shares.
Apple (NASDAQ: AAPL), said to be suffering from sluggish sales of the iPhone X, had about 10% clipped off the value of its stock.
Netflix (NASDAQ: NFLX) shares slid 17% from the recent highs amid worries about slowing subscriber growth.
And just this week, the belle of the ball, Amazon (NASDAQ: AMZN), got whacked across the knees — Tonya Harding style — after reports the Trump administration is “obsessed” over regulating and taxing the online retail giant.
As a result, AMZN shares have slumped 15% off their recent high:
It does seem like the sky is falling when the Nasdaq’s best and brightest stars are getting shot down.
But here’s the good news: Based on my experience, once the market’s leading stocks get hit, you are usually closer to the END of a correction.
One note of caution: During this correction, the Dow and S&P have already tagged their long-term uptrend lines, as marked by the 200-day moving average of price. That’s happened several times during this bull market, and every time stocks found support at those levels.
However, the popular, tech-heavy Nasdaq has not yet hit that key support level, and before this correction is over it’s likely to do so.
As for the ultra-popular FAANG stocks: As a group they have already fallen about 15% from their high. But the 200-day moving average is still about 7% lower from here.
If the Dow and S&P can test their long-term moving averages, then why not the Nasdaq and FAANGs?
Keep your seat belts securely fastened and stay alert.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch