Price Action Lab Blog

Premium Market Analysis

Market Statistics

FAANG Pump and Dump Scheme?

FAANG equal allocation portfolio has plunged about 23% since peak performance on August 30 of this year. This equates to losing nearly a quarter of its value in the course of 57 trading days, or a loss of about 40 basis points on the average per day. Given that there are no conditions of a bear market and the economy is doing relatively well, FAANG losses raise suspicions about a pump and dump scheme.

One cannot prove a pump and dump scheme by analyzing daily data; it is impossible.  Detailed information on transactions is required and a model that can decide the probability of a pump and dump scheme. Here we just ask the question based on the performance of five stocks that have been market drivers recently. The performance deterioration shown below may as well be the result of fear and greed:

Specifically, from the peak performance for the year at 43.75% on August 3o, the equal weight portfolio of FAANG stocks has dropped by about 23% to a YTD return of 10.7%.

In fact any investor that entered the market after April of this year is realizing a loss between -2% and -23% for those who were unfortunate to enter near the top.

Is this supposed to be happening to stocks touted as the pillars of the technological miracle of USA?

I have no answers. I just try to identify the questions. One famous philosopher said once that the hardest task in knowledge acquisition is determining which questions to ask. Someone, somewhere, may have the answers.

Year-to-date, FB shows the largest loss at -25.5%:

AMZN and NFLX are still doing well YTD despite a plunge from highs  of -25% and -35%, respectively. AAPL and GOOGL are each down about -20% from their highs while FB is off by about -40%!

Are the above drawdown levels justified in the context of regular trading and investing? In my opinion they are not given the short period of time they have occurred. This is too speculative for a mature market and similar to price action in some developing market. Is USA a developing market?

I guess readers would like to know my opinion, although not backed by rigorous analysis. I believe that there was some scheme in FAANG stocks. Maybe it was not responsible for the full plunge but assisted first the rise and then accelerated the decline. Probably we will never know. If these were penny stocks maybe we would know and the faces of those who did it would be displayed in social media. But who wants to claim there was a scheme in stocks that drive the market and major indexes? After all, buying stock and selling it later is legal, even though uninformed investors will face significant losses. This is the game, and the game is ruthless. Prepare for more of this in the future as the hedge fund war intensifies. My opinion: try not to end up collateral damage of the hedge fund war.

If you found this article interesting, I invite you follow this blog via any of the methods below.

Subscribe via RSS or Email, or follow us on Twitter

If you have any questions or comments, happy to connect on Twitter: @mikeharrisNY

Charting and backtesting program: Amibroker

Disclaimer

Market signals from systematic strategies are offered in our premium Market Signals service. Stock signals are offered daily in our Premium Stocks report. For all subscription options click here.

Leave a Reply

Theme by Anders Norén