FAANG takes a holiday

When 2017 draws to a close, it’s a safe bet that tech stocks will be the equity market story of the year—no other sector has really come close. As of 12/19/17, the S&P 500 Information Technology sector was up roughly 39% on the year, around 17 percentage points more than the next strongest sector, Health Care. The tech-heavy Nasdaq 100 index (NDX) was up 33% on the year vs. 20% for the S&P 500 (SPX). The FAANG stocks—Facebook, Apple, Amazon, Netflix, and Google—have certainly done more than their fair share over the past 12 months.

Facebook (FB) has recently slowed a bit, though. To be fair, the stock was still up around 55% on the year yesterday but it is nonetheless in its third week of consolidation after hitting an all-time high of $184.25 on November 28.

Facebook (FB), 11/6/17 – 12/19/17

Source: OptionsHouse

Is tech toppy? Are the FAANGs going to retract their fangs a bit? Or are down days like this just buying opportunities? Well, Apple (AAPL) got a—you might want to sit down—downgrade recently,1 and some analysts have pointed out that many tech stocks (especially the FAANGs) don’t stand to gain much (and might even suffer) from corporate tax reform.2

It would hardly be surprising to see at least some market rotation out of such a hot area at some point, but betting against tech has been a fool’s game for quite a while, and analysts don’t appear to be lining up to predict imminent doom for the sector. In fact, it’s mostly the opposite—market commentators and financial news outlets seem to be looking for more tech good times in the coming year.3 (Contrarians, start your engines.)

Getting back to Facebook, this would all seem to point to yesterday being an isolated down day. However, yesterday’s lower high and close ensured Facebook had put in a second lower swing high since the November 28 top. Looking at the other times Facebook has made similar moves—a five-day high that is lower than the high of the 10 days before that, followed the next day by a 1% (or larger) loss—shows the stock tended to rebound the next day but then have at least a couple more days of weakness after that.4

Facebook (FB), 12/8/16 – 12/19/17

Source: OptionsHouse

Extending the daily chart a bit shows FB will be approaching a support-resistance level that, although violated by the down swing that ended earlier this month, dates back to mid-year and might be a barrier to a test of the December low—a level that is definitely a line in the sand.


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1 Bloomberg. Apple’s Stock Just Got a Rare Downgrade. 12/19/17.

2 Fortune. How Tax Reform Is Tanking Tech Stocks. 12/5/17.

3 ABC News. Tech stocks on track for another record year in 2018. 12/14/17.

4 Supporting document available upon request.