Overnight the Dow plunged 600 points in a volatile market driven largely by hefty tech losses primarily in the FAANG stocks. Nasdaq dropped 2.8% to 7,200.87 falling back into correction territory.
The S&P 500 tech sector itself is now trading in correction territory (meaning 10%) down more than 10% from its 52 week high. Within the sector, nearly 70% of the stocks were at least in a correction.
As I mentioned earlier in my earlier post, what happens to FAANG will largely define the market to come now that the midterms are over.
Facebook – broke its 5 year trend line- down 34.9% from all time high of $217.50 on July 25 2018 Apple- down 16.3% from its all time high on 3rd October 2018 Amazon- down 19.8% from its all time high on 4th September 2018 Netflix- down 30% from its all time high on 9th July 2018 broke 1 year trend line Google- down 18.4% from its all time high on 26th July 2018
As you can see above, FAANG peaked between July-October 2018 and the bubble is bursting. FAANG has so much more to fall if investors realising that the rising momentum has turned, they would exit and ETFs would have to follow suit, amplying the falls as we progress.
As an example, Amazon on Jan 2 2018 was traded at USD1189, reached a high of USD 2,039 and now trading at USD 1,636 so Amazon is still up 37.6% for 2018 despite the fall.
Tech stocks on ASX would be the whipping boy in the days to come.
Nasdaq breaking 7,000 would be IMO a defining event and would be an ominous signal of a lot more pain to hit the tech sector. There is a strong chance this would happen as exuberance is now in the process of deflating. Do you know how many mom and pop investors buying into the FAANG ride this year? I don’t have the numbers but I can tell you quite a lot – it was the ‘sure’ trade of mid 2017-mid 2018. Remember we had our tech run in last quarter last year where you can just make lots of money in any tech trade- then it burst after the Feb 18 Dow correction? Well, this is what Nasdaq is experiencing now.
