FAANG Bang!

FAANG bang!  Equity markets sold off yesterday led by the once-loved tech sector in a continuous stream of bad news.  Some high flyers in the technology sector were still reeling from a spate of negative news that hit the tape last week.  Most notable is tech sector leader in spirit and weight: Apple.  Investors have been struggling with the stock since its earnings release in which it provided less-than-glowing forward guidance.  Apple, being a company that garners such a high level expectation, becomes vulnerable to unmet expectations quite easily even when the smallest cracks appear in its foundation.  In the case of Apple, investors are always concerned with any signs that iPhone sales may be losing momentum and eyebrows were raised when they announced that holiday sales may be soft, especially in the wake of new product line launches in September and October.  Investor concern was stepped up last week as reports began to circulate that Apple was scaling back component orders from its suppliers.  Investors seemed to digest the news on Thursday and Friday as the stock looked like it was attempting a turn around posting positive closes and ending the week on its 200 day moving average.  A report from the Wall Street Journal was released yesterday which put a fine point on last week’s demand slowdown fears causing investors to sell the stock, which slipped by -3.96% in yesterday’s session.  The weak close has left the stock just a hair above its bear market line. Why am I dedicating all of this ink to Apple?  As a quick reminder if you are not a regular reader, the stock’s weightings in the major indices are: 5.04% of the Dow Jones Industrials, 3.84% of the S&P500 (the largest weight in the index), and 11.85% of the NASDAQ 100 (also the top weighted component).  Additionally, Apple is the de facto spiritual leader of the tech sector and when sentiment is low on Apple all of the others struggle regardless of the fact that the other sector leaders are not even technically in the same industry group.  Speaking of the others, another high flyer, Facebook, has also been struggling with bad news as investors are becoming suspect of the company’s handling of subscriber security and manipulative news.  A New York Times report from last week has thrown the company’s management practices into question adding weakness to the stock, which has been in a downtrend since late summer.  Facebook traded off -7.98% in yesterday’s session. So the once high flying exclusive FAANG group, whose members include Facebook, Amazon, Apple, Netflix, and Google/Alphabet is struggling.  All members except Apple (though it is close) are in bear market territory.  Additionally as reported here yesterday Nvidia’s sharp decline that began Friday as result of a scaled back-outlook caused by a slowdown in crypto mining continued in yesterday’s session falling -12% in yesterday’s session.  Ok so it is clear why the broader tech sector sold off yesterday.  Add to the mix the contentious APEC meeting over the weekend and a missed housing number (NAHB came in at 60 with 67 expected) and you get a really weak market.

The S&P 500 closed below 2700 and its 2701 Fibonacci support line and will get support below from its 2645 Fib line (see chart 4 in my attached daily chartbook). The Dow Jones Industrial Average closed below its key Fibonacci support at 25045 and its 200 simple moving average but above 25000, which is its next key support level.  The index will also get support from its Fibonacci line at 24595 and is now in risk off territory along with the other major indices (see chart 6 in my attached daily chartbook).  The small cap Russell 2000 gave up important ground yesterday closing below its key Fibonacci support line at 1424 and its round 1500 support line (see chart 7 in my attached daily chartbook).  The NASDAQ 100 sold off -3.26% closing below its key Fibonacci support line and it will get further support at 6574 and Fib 6541 (see chart 8 in my attached daily chartbook).  Bitcoin continues to struggle as the cryptocurrency broke below key support levels at $6000 last week and $5000 overnight, which should serve to bring the crypto discussion back into the news cycle after having had a long rest period (see chart 15 in my attached daily chartbook).  Bonds rallied yesterday in response to the selloff in equity markets bringing 10 year yields below Fibonacci support at 3.06% and bringing the 2/10 curve to 26 basis points.  The ten year will start today’s session 3.04% with the curve slightly flatter at 25 basis points.

Today we get another group of important housing numbers.  Housing Starts are expected to have grown by +1.8% after having fallen by -5.3% month over month in the last period.  Building permits are expected to have declined by -0.8% following last month’s decline of -0.6% month over month.  Additionally, a number of retailers will have announced by the open of the market.  The ones that have announced by the time of this writing have been mixed, which will certainly add to volatility in the sector in the day ahead.  All eyes will be on technology again today after having shown weakness overnight and in this morning’s premarket where Apple currently sits in official bear market territory.  Some positive news will be well received by traders and with very little appearing to be forthcoming it will likely be another difficult and volatile trading day.  Please call me if you have any questions.

daily chartbook 2018-11-20