Where to Short 3 Falling FAANG Stocks This Fall

FAANG stocks have revolutionized the way we communicate, socialize, shop and entertain ourselves. Therefore, it's easy to see why investors have eagerly added these game-changing technology companies to their portfolios. FAANG is an acronym for the world's most popular and best-performing tech stocks – Facebook, Inc. (FB), Apple Inc. (AAPL), Amazon.com, Inc. (AMZN), Netflix, Inc. (NFLX) and Alphabet Inc. (GOOGL), the parent company of Google. According to FactSet data cited by Bloomberg, FAANG stocks accounted for 81% of the S&P 500's 1.7% 2018 first-half gain.

During October's market rout, FAANG stocks have sold off particularly hard as investors question whether these companies can continue to provide double-digit revenue increases into 2019. Amazon and Alphabet exacerbated these concerns after both industry leaders fell short of revenue estimates when they reported earnings Thursday. Technology stocks are likely to remain volatile this week as investors eye earnings from Apple and Facebook for further guidance.

Traders who are looking to short sell FAANG stocks should closely monitor these three names that have all fallen below critical support levels. Here are three trading ideas to consider.

Launched in 2004, Facebook is the world's largest social networking company. Its stock is down 11.6% this month as of Oct. 29. The tech giant has come under heavy scrutiny since a September data breach, allegations by advertisers that it concealed inflated video metrics and a push from major shareholders to remove CEO Mark Zuckerberg as chairman.

Facebook stock has traded in a steady downtrend since the social media giant reported its second quarter 2018 earnings. Traders should look to short on a retracement to the $160 level, where the stock price is likely to find resistance from the downtrend line and 50-day simple moving average (SMA). To confirm that the price has resumed moving in the trend's direction, traders could wait for the stochastic oscillator to cross below 80 – the indicator's overbought reading. A stop-loss order could sit just above the 50-day SMA, while profits could be booked at the $145 level – the lower trendline of a descending channel.

Alphabet formed as a result of a corporate restructuring of Google on Oct. 2, 2015. The company's stock came under additional selling pressure Thursday after a slight miss on sales that accounted for traffic-acquisition costs. As of Oct. 29, Alphabet shares are down 10.2% this month. Some analysts have concerns that the slowdown in Google's search business revenue is a direct result of increased competition from Amazon as consumers use the e-commerce conglomerate to conduct their product searches.

Alphabet's share price has made lower lows since mid-August, indicating that the stock is now in a downtrend. Traders could consider opening a short position on pullbacks to the $1,180 resistance level. Short sellers could place stops slightly above the early-October swing high and set a take-profit order near the February and March swing lows at the psychological $1,000 support level.

Headquartered in Los Gatos, California, Netflix is a leading media services company that offers popular movies, television shows and documentaries that users can stream over the internet. Morgan Stanley, Goldman Sachs and Raymond James reduced their price targets on Netflix shares ahead of the company's third quarter earnings release, citing dollar strength, rising interest rates and increasing expenses. Netflix stock is down nearly 20% this month as of Oct. 29.

Netflix shares recently broke to the downside from a symmetrical triangle pattern, which suggests that further falls lie ahead. Traders could look to short the stock between $340 and $360, where the price should find significant resistance from both the 200-day and 50-day simple moving averages as well as the symmetrical triangle's lower trendline. Traders might wait for a bearish candlestick to print, such a hanging man or gravestone doji, before actioning a trade. A profit target could sit in the vicinity of the Jan. 23 gap at the $250 level. Consider placing a stop above the symmetrical triangle's upper trendline to close losing positions.