Friday, May 19, 2017

The FAANG: correction or end of its rally?

As you know, the term FAANG brings together five of the most popular and successful technology companies, leaders in Wall Street, all of top-notch Market Cap: Facebook FB, Apple AAPL, Amazon AMZN, Netflix NFLX and Google GOOG.

Beloved by everyone, from conservative investment funds and stock retailers to newbie traders, these stocks have had an amazing growth in these last 4 years, see if:
Facebook + 544%
Amazon + 268%
Apple + 170%
Netflix + 441%
Google + 124%


The uncertainty today is their immediate future: they have reached the end of their bullish rally, or what happened last Friday (all fell more than 3% with very high volume) was only a usual correction of the market?


History says that when these 'super bullish stocks' fall, they do it abruptly, with corrections that take time (years) to recover. See the recent case of companies in the biotechnology sector (followed by the IBB index) in fashion until about 3 years ago. I am not comparing both sectors, but simply exposing, for didactic purposes, such as the falls in stocks with a lot of momentum, such as today's FAANG. Next weeks can be significant for the FAANG, as one of them, Apple, presents its new iPhone10, which has filtered so far will not make much difference compared to their cheaper Korean and Chinese pairs. 

In my case I have lowered my exposure in these stocks, because they are heavily oversold months ago and, in my "sentiment trading" opinion, (except Google) somewhat overestimated in their value and price. For now, it is only necessary to follow these stocks and wait with caution.


The last 4 years of the FAANG resemble the period 2011-2015 of biotechs IBB. Then came a correction of almost 30%. I do not say that this can happen, I simply state that the falls in stocks with high momentum, like today's FAANG, they tend to be very abrupt.
.