This has been an interesting week for the markets. Yesterday Facebook made stock market history.
Facebook fell 19% to lose more than $119 billion in market cap. Until yesterday no other stock before had ever dropped over $100 billion in terms of market cap in a single day ever before.
Take a look at the chart.
I was talking with David Skarica about this and he said it reminded him of what happened to Lucent back in 2000.
That isn’t to say that Facebook is going to vanish, but that it had become a “must own” stock much like Lucent was back then.
The impact of the bad news in March surrounding Facebook with the Mercer owned Cambridge Analytica scandal, privacy woes, and the negative impact to revenue on news feed changes that materialized did not impact the earnings statement until yesterday.
The delayed news gave Mark Zuckerberg the ability to unload several billion shares of Facebook stock at high prices in the past few months. Here is a just a taste of a week with Zuckerberg.
People knew it was coming, but it didn’t matter, because in a market like we are in now ALL THAT MATTERS is pure price action.
I actually shorted Facebook and got out in May when it gapped up.
That move up in the face of bad news caused many other shorts to get out and for others to chase what seemed to be an invincible situation. People knew of the bad news surrounding Facebook the company, but the stock itself was going up and that is all that mattered.
But it now no longer is and it’s a big warning sign to how the risks are growing in the market when wonder stocks get smashed.
Facebook was not the first one.
Tesla has been a fad stock now in big trouble despite Musk claims that any negative talk against Tesla is “fake news.” He recently has claimed an employee sabotage conspiracy is part of his companies problems.
Netflix also gapped down the other week on earnings and had a failed bounce attempt right after. That type of action is usually what happens when a stock dumps this much in a single day.
Will this impact the stock market?
As I have mentioned several times Facebook has become one of five stocks that went up so much that by this past weekend they have come to make up half of the entire Nasdaq 100.
The others are Amazon, Google, Microsoft, and Apple.
All of those four are still intact in their uptrends.
And all of these four have been going straight up with Amazon poised to gap up today.
So one may ask will bad Facebook drag the market down or will Amazon keep pushing it up?
One stock does not matter that much, but as a group the FANG’s do matter.
I fear when their rally ends that the whole stock market will begin another drop back down towards support.
We have seen a negative divergence between the internal indicators of the stock market and the averages themselves, which have been pushed up higher with the help of these five stocks.
So I’m going to be watching the action very carefully in Amazon today and in all of these stocks next week.
We have already seen Google, Microsoft, and Facebook report for this quarter. Apple reports next Tuesday and the Federal Reserve FOMC meeting is the next day.
Here is Amazon let’s see what it does today.
I’m not a believer in chasing stocks and Facebook shows why entry points are so key.
That means buying AFTER a big drop and a stabilization or towards the completion of a consolidation pattern.
The latter is how MSB lined up.
I’ll be doing an update on a new key ETF position I plan on taking as a 10% investment for private Power Investor members this weekend.
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