A FANG Flameout Reveals a Hidden Trade

Say a quick prayer for the FANGs this morning.

While bitcoin’s latest romp to new highs distracted most investors yesterday, the FANG “block” just suffered its worst drop in 22 months.

Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOGL) were hit with losses of 4% and 5.5% on the day, respectively. Semiconductors are also feeling the heat, with industry leader NVIDIA Corp. (NASDAQ:NVDA) cratering almost 7% by the closing bell.

“While the 3.7 percent drop in an index tracking Facebook, Amazon, Netflix and Google was the biggest in 21 months, the amount of lost money exceeded any other single day on record,” Bloomberg reports. “At about $60 billion, the decline in their combined market value is poised to eclipse any since Facebook arrived in public markets.”

What the heck is going on with the market’s biggest winners? Is this hard reset the beginning of a bigger move lower for the tech sector?

Let’s break down the action…

The investing playbook for the past 11 months has been dead simple: Buy your favorite big, popular tech stock: Facebook, Amazon, Netflix, or Google. Then sit back and wait for the gains to roll in. Throw all your complicated strategies out the window. Just grab the FANGs by the tail and collect your winnings.

It’s no secret that blindly buying the FANGs has quickly morphed into a “can’t lose” investing strategy. Tech mania appeared to reach fever pitch right as the Intercontinental Exchange launched the NYSE FANG+ Index futures earlier this month. The index is made up of the four original FANGs plus Alibaba, Baidu, Nvidia, Tesla and Twitter. It’s a short list of the hottest stocks on the market stuffed into one trading vehicle…

“If the market does post a significant drop from here and the fearless FANGs lead stocks lower, pundits will surely point to the launch of FANG+ Index futures as tech’s harbinger of doom,” we noted on the morning of Nov. 9th.

I’m not a top-caller. One bad trading day probably isn’t the end of the world for the tech sector. The market gods have rewarded anyone holding even one or two FANG stocks in 2017. Even after yesterday’s face-plant, the top stocks in this elite group remain up more than 50% year-to-date.

We’ll keep a close eye on the tech sector to determine whether this drop is a dip-buying opportunity or the beginning of a bigger correction. But right now, it’s time for us to look beyond the FANGs and find the trades no one else is talking about.

While tech stocks dragged the Nasdaq Composite lower by almost 1.5% yesterday, a handful of impressive breakouts flashed across our screen. Even though the stock market fried some circuits during Wednesday trade, we’re heading into the last trading day of the month with some very interesting rotation on our hands.

Just check out the retail sector.

Earlier this week, we showed you how traditional retailers that have successfully built out their online shopping options are standing strong against the Amazon juggernaut. The outperforming names in this group are even helping to dig the SPDR S&P Retail ETF (NYSE:XRT) out of its 2017 funk.

Yesterday’s bullish action has now helped push XRT to levels we haven’t seen since January. The sector is quickly becoming a new market leader during the busy holiday shopping season, turning XRT into a strong narrative-busting trade.

Sincerely,

Greg Guenthner
for The Daily Reckoning

The Daily Reckoning