Live by the FANGs—die by the FANGs

By Alan Valdes, director of floor operations at Silverbear

For the second week, there’s been another downgrade for Apple (AAPL) and, like last time, all the other FANGs followed Apple down. After Friday’s selloff in the tech sector that saw the Nasdaq (^IXIC, QQQ) plunge 1.8% and the S&P 500 (^GSPC, SPY) slip 0.1%, traders were hoping for a little reprieve. Then the Nasdaq had its biggest two-day slide since December, closing down at -32.45. The Dow (^DJI, DIA) also gave up 36.30 to close at 21,235. The S&P didn’t fare much better at -2.38 down, finishing the day still above 2400 at 2429.

Traders on edge

Although not a major breakdown, and nowhere near a correction, traders were still on edge. Was this the beginning of the dreaded “Summer Swoon”? Not quite. I have lived through 25 years of summer swoons and almost every following summer, the market is higher than the previous one. It should be called “Summer Sales.” Today’s Apple downgrade was by Mizuho Securities, taking the stock down to a neutral recommendation from a buy. It also caused the tech select sector SPDR ETF (XLK) to break below it’s 50-day moving average, the first time since April 18. Its been a tough two days—not only for Apple, but all the FANGs.

Here is a look at their performance the last two full trading days: Apple down 6.24% from $154.82 to $145.42; Facebook (FB) falling from $155.55 to $148.44; Amazon (AMZN) down -4.75% to 964.91 from $1,013.00. Netflix (NFLX) down 8.67% from $165.82 to $151.44; and finally, Google (GOOGL, GOOG) down -4% from $984.15 to $942.90. It seems as though when one of them coughs, they all catch a cold. Fortunately, for tech stockholders, the FANGs and Nasdaq are bouncing Tuesday afternoon.

Federal Reserve expected to raise rates Wednesday

Enough about the last two dismal days. Today starts the main event—the Fed! Janet Yellen and company meet in Washington to discuss rates. About the only surprise would be if they don’t raise rates 0.25 percentage points. Traders, as usual, will be watching the press conference tomorrow, following the announcement, to get a feel for the next rate hike. They’ll be looking to Fed officials for clues as to the pace of rate hikes, their expectations for growth of the economy, and in general, the determination of the overall health of the economy. Although we don’t expect any surprises, you can be sure that all eyes will be glued on the announcement.

With the Fed announcement tomorrow, expect volume to be on the light side today. The only government data of any consequence is the Producer Price Index, where the headline number ticked down to 2.4% year over year, and the core number rose to 2.1% y/y. With temperatures here in New York City approaching the low 90s for the second day in a row, expect a lot of traders to be heading for an early exit to a cool pool.