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NASDAQ leads sell-off

By David Morrison  |  22/03/2018 15:53

This article looks at the sell-off in tech stocks triggered by concerns over Facebook

FAANGs under pressure

Just nine days ago the tech-heavy NASDAQ 100 powered to a fresh all-time high, shrugging off the US stock market correction at the beginning of February.
Tech stocks, and in particular the FAANGs (Facebook, Amazon, Apple, Netflix and Google/Alphabet), have led the market rally for years now. But they’re currently undergoing a sharp pull-back, triggered at the beginning of this week by the negative news on Facebook concerning its cavalier attitude to users’ data.

Warnings shrugged off

Now it’s fair to say that investors have been largely ignoring the political pressure on FAANGs and the way these companies operate. Complaints about unfair tax arrangements, an overall lack of regulation, the near-monopolistic positions of Facebook, Alphabet and Amazon and the way that they drive out competition and treat their staff have been repeatedly shrugged off. In fact, a quick glance at comments on investor blogs suggest that many see the current sell-off as a perfect opportunity to increase their exposure. “Buy the dip” appears to live on.

FAANG stocks "over-owned"

But this time could be different. It’s worth noting that FAANG stocks are some of the most “over-owned” companies in history. That’s to say that fund managers have increasingly concentrated their holdings in this small handful of companies as a cheap and easy way of getting exposure to equities. But a look at levels of margin debt also suggests that a lot of this buying has been done on leverage. That means that it doesn’t take much of a pull-back to trigger margin calls which can lead to further selling.

Technicals in focus

So, keep an eye on the charts. This one shows support for the NASDAQ 100 coming in around 6,800 – a level which roughly marks the 50-day exponential moving average and the 38.2% Fibonacci Retracement of the Feb-March rebound. A close below here will rattle the bulls and put 6,700 in the frame as the next downside target - the 50% retracement of the same move. But watch out for a rebound as there’s an incredible amount of money resting on a recovery. So there could well be concerted efforts to push the bears back.  

NASDAQ 100 daily chart

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