FANG Stocks Rollover In Unstable Markets

After a near 700-point rally on the Dow Jones Industrial Average Monday many were of the opinion that the markets may have finally double-bottomed. Tuesday found that sentiment quickly out of favor and retracted as the Dow gave up much of Monday’s gains with the Nasdaq falling 2.9% on the day. The tech sector fell hard as the infamous FANG stocks rolled over, led of course by Facebook, which has been embattled over the sale of user data for ill-fated purposes by the likes of Cambridge Analytica. To make matters worse, Facebook is now being sued by users of the Facebook app. Three users of the Facebook Messenger app sued Facebook on Tuesday, saying the social network violated their privacy by collecting logs of their phone calls and text messages, in the latest legal challenge facing the company.

The U.S. lawsuit filed in federal court in the Northern District of California seeks status as a class action on behalf of all affected users and asks for unspecified damages. Facebook Inc. Chief Executive Mark Zuckerberg is planning to testify before Congress about the way the social media giant manages its users’ data, people familiar with the matter said Tuesday.

The NYSE FANG index fell 5.6% yesterday and is down 6 % over the last week. What was most discouraging yesterday was that at one point, the three major averages, including the S&P 500, were higher on the day at some point and before rolling over in the afternoon. The Dow Jones industrial average closed 344.89 points lower at 23,857.71 and re-entered correction territory. Microsoft was the worst-performing stock in the index.

The tech sector took a beating yesterday as the reporting of individual company issues came rolling in. Reuters reported Nvidia is temporarily suspending self-driving tests. The news sent the stock down 7.8 percent. Tesla shares also fell 8.2% after the U.S. National Transportation Safety Board announced it would investigate a fatal crash that took place last week. Twitter also came under heavy selling pressure in sympathy over the issues raised over Facebook’s business model, which it shares.   Short-seller Andrew Left said he is betting against the stock. Another FANG stock, Netflix, declined more than 6.1% yesterday.

In our Finom Group daily article yesterday, we discussed the unusually high VIX and consternation surrounding bond yields not moving much during the Monday market rally. The main point we offered was that the market hadn’t stabilized. Tuesday market downdraft was a perfect example of this sentiment.

“Whether it’s the technicals, the economic data of the day or trade tariff proclamations; the VIX is telling investors and traders that the market has not stabilized since the February 9, 2018 lows.”

The VIX was lower for much of the market session yesterday with bond yields falling sharply. The VIX finished Tuesday’s trading session at 22.50 with the 10-year Treasury yielding 2.78 percent. The flight to safety yesterday was more apparent than previous market sell-offs displayed. The latest downward move in the 10-year yield comes after it approached multiyear highs around 2.93% only a week ago. The yield has fallen more than 15 basis points since then and is at its lowest level in roughly seven weeks.

The major averages are still expressing a market correction that has not completed. This can be viewed against the benchmark S&P 500 technicals. The S&P finished last Friday at its 200-day moving average, and rallied respectably from one-month lows on Monday.

As shown in the chart above, resistance spans from 2,673 to 2,695, the latter matching the 2017 peak. This area also matched Thursday’s session high (2,695), and capped a bearish two-day downdraft. Though the prevailing technicals are not all encompassing leading indicators, but the backdrop broadly supports a bearish intermediate-term bias unless upper level resistance is broken. Having said that, the S&P 500’s primary uptrend is intact to the extent it continues to hold support at or near the 200-day moving average. But if the 200-day moving average fails to hold…the market declines could exacerbate quickly. At present, equity markets are in search of stability as major sectors within broader indexes are unwinding gains from the last 12 months. Protection is at a premium ahead of key economic data this week and the pending earnings season.