Thursday, August 06, 2015


One by one the big trees in the stock market are getting axed. First it was Alibaba, then Exxon, then Apple, then Twitter, then Disney, then Tesla, then Fitbit ... many of these high fliers after reporting stellar quarters. The only biggies who seem to have escaped this clear-cutting so far have been Facebook, Amazon, Netflix and Google (the FANG group as christened by Jim Cramer.) What's going on? Yes China is slowing down and may, in fact, be in a recession. And yes, the Federal Reserve Bank is likely going to start raising interest rates next month. But earnings of these mentioned forest-floor timbers have still been improving and future guidance is still positive. So what is wrong?

To me the dramatic price-drops in these mostly high PER (price earnings ratio) stocks are presaging a general market sell-off sometime soon. Generally in stock market down-drafts, it is the high-flying stocks that suffer the most ... and since these stocks have been the investments of last resort as weakness permeated most other market segments (see: Where to Invest), it is now their turn in the barrel. In fact, I suspect that any real weakness in the FANG group will be the final indication that a major stock market correction is upon us.

So keep your powder dry ...

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