If you haven’t noticed by my sour disposition for the better part of 2016, there were a lot of things that I really hated this year. Yeah the Pokemon Go craze and Mannequin challenge were annoying, the election, I can’t even, but when it comes to the markets the continued infatuation with FANG stocks (until very recently) was really getting under my skin. Last night on CNBC’s Fast Money Evercore ISI’s technician Richard Ross made the case why these stocks could bounce:
— CNBC’s Fast Money (@CNBCFastMoney) November 30, 2016
Ross cited three reasons why Amazon (AMZN), Alphabet (GOOGL) and Facebook (FB) could rally in the coming weeks; an oversold condition in an overbought market, 10% plus pullbacks to long term support and strong seasonality in December and January for mega-cap tech stocks.
I’d make one point about these three stocks, they were all trending lower prior to the election, with AMZN and FB having sharp post earnings declines, and GOOGL giving back all of its post earnings gains. Clearly there has been a rotation out of crowded growth stocks into sectors like financials that have lagged and are now perceived to be better leverage in world of de-regulation.
To my eye, AMZN and FB might have a bit more room to the downside, with AMZN likely having a date with $700 in the not so distant future:
FB’s post earnings gap broke below the uptrend that had been in place since the August 2015 flash crash low. The stock has support near $110, the April breakout level to then new highs:
Lastly, GOOGL which is now flat on the year, is under-performing the other two with (AMZN up 11%) and (FB up 13%) year to date. Like the other two, there is support just below the recent lows:
But unlike the other two, the stock has decent valuation support relative to current Wall Street consensus estimates calling for 19% eps growth in 2017 and 17% sales growth. GOOGL trades just below 19x expected forward eps growth of 19%, that is pretty reasonable for a company that likely grew sales this year 20%, from $60.65 billion in 2015 to an expected $72.77 billion in 2017. While competition is growing for GOOGL from the likes of Facebook, and possibly traditional advertising channels, and costant upstarts like SnapChat, even during the Great Recession in 2008/09, GOOGL’s sales actually increased 10% yoy in 2009 to $17.5 billion and EPS more than doubled.
I am not a chartist, I don’t trade or invest in stocks solely on technical inputs. But sentiment had already started to shift in two of the most universally loved tech stocks, and I see no great reason to jump in until we see some fear among AMZN and FB investors, an emotion they have not felt in years. Small incremental fundamentals changes are likely to cause large reverberations in these two stocks. GOOGL on the other hand, is far less likely to cause panic selling unless there is a large fundamental change, because their valuation and shareholder expectations are far different.