Fangs Getting Banged | More Pain Ahead For Equity Markets
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European markets are in for another brutal day. As proven by the US equities markets yesterday, the big bounce we
experienced was nothing more than a dead cat bounce. No surprise there at all. We think the US equity markets are in for
some rough time and we could see the markets falling another 5% from here.
FANG stocks are in pretty rough shape, and are getting banged brutely by short sellers. The FANG stocks had the worst
day yesterday since February 2016. Most of the gains over in the US for the last 18 months were supported by the tech
sector. Having said that, the NASDAQ index is still relatively much stronger as compared to the S index, which has moved closer towards the 200-day moving average for the third time in three months. Break of the
200-day moving average usually confirms the bear markets.
The tech sector is predominantly getting battered, mainly due to the woes of Facebook’s data breach. We clearly have
three kind of investors when it comes to the Facebook; firstly there are some who are jumping out of the ship, pushing
the stock price lower. Secondly, we have investors who are watching the show from the sideline and thinking there is
more pain to come as we do not know how big the potential fine could be. This is not helping the stock price either.
Finally, we have those who are not interested in Facebook anymore as they think that the regulatory burdensome on
Facebook is too risky for their appetite and they do not want to get involved in this stock.
We personally think, that Facebook has strong fundamentals and it has become the part of everyone’s daily life, so once
we have a clear idea about the potential sum which the firm would have to pay as a result of this situation, the stock
price could present a potential opportunity.
As for the FANG stock including Microsoft, Twitter, it is likely that the Facebook incident would open the door for more
scrutiny for other firms, and lawmakers would see how other firms are using user data. This could really open the can of
worms and open a potential opportunity for short sellers.
Back in the U.K., Sterling traders are going to gauge the health of the consumers by monitoring the CBI sales data.
Sterling has gained major strength against the dollar and the euro since the start of this year and this is mainly due
to positive development around Brexit negotiation.
Higher inflation and lower wage growth is still a major hurdle for the policymakers. Businesses were quick in passing
the higher cost to consumers, as derived from a sudden drop in the currency. But we have come far away from the Brexit
lows for sterling, although consumers are still facing higher prices. The forecast for today’s data is 7 while the
previous reading was at 8. If a number comes below the forecast reading, it would signal weakness in the economy and
that could push the Sterling lower against a basket of major currencies.