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FAANG Stocks are Bleeding after Google’s Quarterly Results

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Wall Street’s coveted ‘FAANG’ complex plunged on Tuesday, capping off a volatile month for technology shares. The rout, which was sparked by rising 10-year yields, was exacerbated by a noisy earnings call from Alphabet that revealed a bigger than expected rise in spending.

Alphabet’s Q1 Earnings Report

Revenues and earnings at the Google-parent company came in better than expected during the first quarter, but a spending binge on new business ventures made it more difficult to assess the company’s future.

Alphabet’s Q1 statement was clouded by the acquisition of HTC, which added more than 2,000 workers to the company’s payrolls., as well as a significant markup in the company’s $3 billion investment stake in Uber. Alphabet’s spending boost not only dampened investor sentiment toward the stock, it ignited fresh concern over competition.

Alphabet’s new business outlays suggest the company is trying to compete on multiple fronts with some of its biggest rivals. For example, the company lost $621 million expanding its Nest smart home business while making only $726 million in revenue last year. With products like Google Home and Nest, Alphabet faces clear competition from Amazon’s Echo line.

With HTC, Alphabet is competing in an entirely different tech industry dominated by Apple and Android devices. Then there’s Pixelbook and other Chrome-based laptops, which pits the Google parent against Microsoft.

FAANG Rollover

The FAANG universe of stocks, which includes Facebook, Amazon, Apple, Netflix and Google-parent Alphabet, declined sharply on Tuesday. In fact, four of the five companies (minus Apple) shed $85 billion in market cap on Tuesday.

STOCK DAILY PERFORMANCE
Facebook (F) -3.7%
Amazon (AMZN) -3.8%
Apple (AAPL) -1.4%
Netflix (NFLX) -3.7%
Alphabet (GOOGL) -4.8%

With the exception of Apple, the FAANG category underperformed the stock market on Tuesday. The S&P 500 Index fell 1.3%, while the technology-heavy Nasdaq closed down 1.7%.

The recent selloff wasn’t the first time this year that FAANG stocks rolled over. In fact, it wasn’t even the biggest. The stock category declined a whopping $324 billion over a three-week stretch ending in early April. The declines contributed to Wall Street’s worst second-quarter start since the Great Recession.

In terms of earnings, Facebook and Amazon are scheduled to report their first-quarter results this week. Facebook has been mired in controversy since the Cambridge Analytica scandal shed light on the company’s data-collection practices. Facebook CEO Mark Zuckerberg struck a positive tone with investors when he testified before Congress earlier this month. However, investors may need more convincing should Q1 results fail to deliver.

Featured image courtesy of Shutterstock.

 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 692 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Analysis

General Motors Fires 27,000 People, Stock Jumps by 5%

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

In early November, we commented on GM, arguing that the stock may reach $40. Not much time has passed, and yet many key events occurred, which increased the volatility in General Motors’ stock. Currently, any major rise is unlikely, as Donald Trump is now taking part in this.

Until recently, things were quite in line with the technical analysis, with the stock correcting to $33.80 and then going up to reach $40.

See the prediction chart we made on Nov 2, below:

On Nov 26, however, GM announced its cost reduction campaign that included firing up to 15% of the employees and around 25% of the management, as well as closing the factories in Michigan, Maryland, and Ohio in the US, and Ontario, Canada.

This was very bad news for the families of the fired employees, but the investors liked it, which pushed the stock up by 5% within a single trading session.

This job cut is of course not in line with Trump’s policy; while the US president is trying to bring the manufacturing back to the US by cutting the tax rates, GM is closing the US based factories, while still maintaining those in Mexico and China. Trump finally said the US government might cut off the tax exemptions for GM,

And this can be well understood. This is not only about the job cut. In 2009, the US government paid $30B just to save the company, which then went public right after bankruptcy. Now, 9 years later, GM is closing its US based factories, but still maintains those in Mexico, where the local government also took part in rescuing the company.

GM reacted on the president’s words with a comment that the trade wars led by Trump made the steel and aluminum import more expensive, which meant the exported GM products were no longer as competitive as before. The major reason lies, however, in bad sales of automobiles. The Q3 earnings report was good, but not because sales were high; rather, it was because car prices went up.

By cutting production, GM is going to save up around $6B, thus doubling its investment into electric car development, including driverless ones.

The only company that wants to increase the manufacturing capacity in the US is Tesla, and, for it, the GM news is very good, as the company may buy the factories being closed and start producing Tesla cars there. This made the Tesla stock rise by over 1%. It would rise much higher in case the decision by GM was final, but it is not.

GM may still keep the US based factories, closing only those in South Korea next year. However, it remains to be seen whether economic and social pressure will get GM to reverse its decision or prolong its factories in North America.

If this is the case, it will be a win-win, as investors will get a higher stock price, the government will keep the jobs, and GM will get additional privileges.

However, GM may still close the US factories, and in this case, nothing may be predicted for sure. Trump’s policy is well unpredictable anyway, and his threats on GM losing its tax exemption privileges may come true. GM will anyways get the positive effect of the factories closing in the short term, but, in a longer term, the company’s activities in the US may suffer a lot. In this case, everything will depend on the factories in the rest of the world, where GM has better conditions.

Thus, fundamentally, the outlook is uncertain and somewhat negative. Let’s see what we can do here with some tech analysis.

Support and resistance levels are key here. The resistance at $37 formed after the earnings report and was active for around a month. Over this time, a key support appeared at $34, then other support levels formed at $35 and $36, which finally broke out the resistance at $37.

It was first broken out when the job cut news came in, but then Trump’s criticism made the price correct; still, it was soon back near $37.

Thus, the report led to a high demand for GM shares, which was followed by a consolidation, as all positions had been taken and the market needed new buyers. Nobody wanted to buy at $37, though, so the price pulled back to $34, where it actually had been before the report came out.

This motivated investors to buy at this good price, and the stock went up quickly.

While the price was going up, new support levels were being formed, which could signal an uptrend. A new support was formed at around $35, which means the investors were no longer expecting any major pullbacks.

When the news on GM job cut came out, new buyers jumped in, which pushed the stock over $38. Those who were late to buy were waiting for a pullback to buy at a better price, which formed another support at $36. The price then went up to $37, where it is currently now.

All this means is that investors have been adding long positions in GM over the last two months, the short float is very low, just 1.99%.

A large amount of longs has a drawback: in case most investors decide to quit, this will lead to a sharp decline. Thus, it is important to find the expected exit point.

In order to find it, one should determine when the stock became popular. This can be easily found at the moment when the earnings report came in.

This particular price level, $33, is a good stop loss; right here, the investors may stop expecting the price to rise and start closing their positions.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 20 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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Analysis

DHI: Let Us Trust the Technical Analysis

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

With the market being a bit overheated, it needs a good correction, after which prices will become attractive for investors, who are taking profits on good company reports. The news overall is still positive, and in this situation, only inexperienced traders are ready to buy securities at maximum prices and outweigh possible drawdowns that can last more than a year.

In this regard, let’s take a stock much dependent on technical analysis, with fundamentals not being that important.

Even in the face of a declining market, there are stocks that could be bought, provided that they are not at their historical highs.

From the point of view of technical analysis, DR Horton, Inc. (NYSE: DHI) is a good option.

DR Horton, Inc. is a US state-owned housing company registered in Delaware, which forms part of the S&P500 Index. In 2017, the company was recognized as the largest housing developer in the United States.

DR Horton, Inc. manages three branches: Emerald Homes operates in the luxury real estate segment, Express Homes is designed for first time home buyers, while Freedom Homes is focused on customers over 55 years old.

The debt to equity ratio is 0.35, which indicates the financial stability of the company. Only in 2008, during the mortgage crisis, it was over 1.00, and shortly after the company’s revenue gradually grew up, while the debt remained at the same level.

The company’s quarterly reports are subject to seasonal factors, but they are still better than last year.

Technically, there’s an uptrend on W1, as the price is still above the 200-day moving average, which has been supporting the stock over the last 7 years. Every time the price went down to the moving average, a reversal followed, and the price made new highs. There’s some logic in it: the price approached the moving average five times, and four of them in fall, after which in November the stock rose again. Of course, this could well be explained with fundamentals. In technical analysis, however, it is important to find a pattern that will increase the likelihood of an event, and the news factor triggering the impulse may appear a little later.

At the moment, the price is somewhere where the probability of its rise is much higher than the probability of decline.

In technical analysis, the possible direction of a price move is determined first on larger time frames, after which it is necessary to switch to shorter ones in order to find a confirmation.

As a result, analyzing D1, one can notice the consolidation between $35 and $37.

The consolidation in any range usually indicates the uncertainty of market sentiment, when traders do not have a clear plan and trade in both directions. This leads to short-term price impulses that end as quickly as they started because the number of people willing to buy equals the number of those willing to sell. Due to this, the balance of supply and demand is maintained, leading to the stock price remaining in a narrow range. Consolidation also has another reason, however: a large buyer.

When a large buyer appears in a stock, they may not always take over a position in one trading session if the current liquidity is insufficient. In addition, one has to disguise their purchase, otherwise, the stock price will skyrocket, and they will not be able to book the planned profit.

As a result, the large buyer begins to systematically ‘scale in’ in small parts within a certain price range with somewhat ‘blurred’ boundaries. But at the same time, every time the stock hit $35, it went up, and thus for 7 sessions in a row.

Before their final attack, the buyer ‘lets the price go’, which makes it either go up or, conversely, sink even lower. If the price reaches the bottom, the buyer starts acting more aggressively at better rates, which is accompanied with a surge in volume (clearly visible when the level of $35 is broken out).

For a more accurate analysis, however, it is necessary to pay attention to even shorter time frames to make sure the predictions are correct. When a large buyer scales in, they either do this with a limit or a market order. Limit orders are preferred, as a large market order may provoke very choppy prices. On H1, we can see it was a limit order indeed, as after the price broke out $35, it stopped near $34 and could not fall below during the next two trading sessions.

The subsequent attempt to fall below $34, meanwhile, led to the fact that at the end of the trading session the stock got back to $35, i.e. the buyer had already begun to actively defend their position. The scaling-in process is over, and they are now waiting for the price to rise.

Retail traders are unable to hold the price or protect their positions at a certain level, but they don’t actually need that. Instead, understanding where the large buyer or seller holds their positions is enough, placing a stop at these levels. The large trader will take care of the rest.

Thus, one can see the large buyer resumes their activity when the price drops below $35 and acts even more aggressively when it’s approaching $34. Basing on these assumptions, we can single out support between $34 and 35. Accordingly, the stop may be placed below the low at $32.50.

In technical analysis, everything is based on the historical data, previously seen patterns and assumptions, but you can never know for sure what will actually happen. Therefore, you always need to determine the entry and exit prices. Just note: the first target for Horton may lie at $45.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 20 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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Analysis

Black Friday: How to Capitalize on It

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

The most interesting event this month in the US is the famous Black Friday, the day of large discounts, which is on Nov 23. On this day, Americans make 45% of all their annual purchases. The US economy is doing well compared to other countries, with the Fed hiking the rates in order to cool the markets down. The unemployment rate is at its record lows, which means people have money, and there’s going to be much hype about the Black Friday as usual. With this scenario, a few companies may show great potential during Q4. First, there’s e-commerce that is a very strong competition against offline stores. Amazon (NASDAQ: AMZN) is the leader here, with the market cap of $1T. In Q3, Amazon made a record high when it comes to quarterly earnings. However, the chart shows it is Q4 that is going to be the most profitable for the company.

Unluckily, after the Q3 report, the price was unable to reach new highs. Investors’ expectations were higher than the data that came out, which led to the share price going down. However, Amazon did make profit, and there’s a good trend in it. Furthermore, Amazon management expects to book the record profit in Q4 2018. In October, we analyzed Amazon and said the company stock is going to trade at around $1,400. It is now trading at its low at $1,476, however, and is above the 200-day SMA. When the price goes below $1,700, the volumes get much higher, according to the chart. Thus, this may be the support the price may start recovering from.

If the earnings expectations are met, Amazon may well rise above the round number of $2,000. Another large company that may get nice profits is eBay (NASDAQ: EBAY), which is mostly centered around e-commerce, too. The profits are good here, while the stock price leaves much to be desired.

Still, eBay incomes are rising quarter to quarter. According to the expectations, Q4 is going to be the most profitable in the recent few years.

Over 2018, eBay stock went down by nearly 30%. Perhaps, the reason for that is the increasing debt, with the debt to equity ratio now being 1.11, while, for Amazon, it is just 0.63. Technically, the stock went down till November last year, too, while after the Q4 report it traded at its highs. This time, the stock looks somewhat weaker than before, and may only reach $36 or so.

Walmart, an offline store chain, may also be included into this list, as this company is sure to get good profits thanks to Black Friday sales. Nevertheless, while eBay and Amazon shares corrected before Q4, Walmart is rising and is trying to break out its record highs made a year ago. Walmart earnings, like internet giants’ ones, are sure to be sensitive to the sales before Xmas.

The company reports its earnings on Thursday, and they are expected higher than the same quarter last year. The income is visibly growing up, and the record highs for Q4 earnings expectations are quite logical. Walmart has been recently going up thanks to large hedge funds positions, with around 52 funds now including this stock into their portfolios.

Technically, as said before, the stock is quite strong. The price is currently above the 200-day SMA, showing good growth and ready to hit new record highs. As for the entry, it’s hard to determine the risk. The nearest support levels are $100 and $90, and once the price reaches either, it could be a good entry point for the next few months.

 

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 20 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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