Spies and Spycraft (FB,XLK)
There’s lots to report today, so sit back and grabba java.
We start with the following but of pithy wisdom straight from the leaders of our fair firm’s investment advisory board. And it goes like this –
The more secrecy that exists in a state’s apparatus, the weaker the state is, and the more vulnerable it becomes to a widespread revolt or armed insurrection.
Commit that to memory.
We offer it up today, not only because our own fair commonwealth has far too much backroom subterfuge and chicanery, but more worrisome, because we’re moving in the wrong direction!
We’re being ever more scrutinized, bureaucratized, analyzed and plain old watched – particularly via the technology we use. And that poses increasing problems for those of an independent freedom-loving stripe – like us, and, very likely, you, too.
The news is filled with constant detail of how much data collection an average citizen is subject to, and what’s outright terrifying is the increasing ‘profiling’ that’s now occurring via the ‘innocent’ search engine technology we daily avail ourselves of and the social media sites we frequent.
You Heard it Here First
It’s no surprise to long time readers of these pages that companies like Facebook ad Google are part and parcel of the problem. Over the years we’ve labeled these corporations, and others, “a spy’s best friend’, the “tool of big government”, “purveyors of surveillance data” and “lovers of police states worldwide”.
For anyone sensitive to issues of privacy and independence it was long ago clear that Facebook and Google and even ‘sales’ companies like Amazon and Apple were selling information to law enforcement and intelligence services in the interest of ‘state security’, even if that meant individual rights to privacy were being trampled.
In any event, it’s refreshing to see that the idea is now gaining currency that these companies represent a potential danger to society and that the abuse could easily lead to systematic violations of the constitution and widespread repression.
Just yesterday, none other than Edward Snowden, self-exiled former contractor with the nation’s most notorious spy agency, the NSA – an institution that records every email, phone call and text message that’s sent or received in the country and beyond – offered the following. He went so far as to say the Facebook “is a surveillance company rebranded as social media”, a company that “makes money by exploiting and selling intimate details about the private lives of millions.”
And so it truly is.
Google’s working relationship with local law enforcement agencies, the NSA and the Pentagon has also been widely documented, and while many are quick to say, “so what!? I’ve got nothing to hide”, that response entirely misses the point.
We’ll have more to say about just how easily the average ‘nothing to hide’ citizen can be manipulated into believing what is contarary to his interest, how he can be bullied and blackmailed by law enforcement that knows his every hobby, habit and penchant, and how companies can fix online prices according to search results and socio economic profiling, and charge you more or less for an item depending upon your Facebook ‘like’ list.
That’s not to mention any potential for abuse based on politics, race, religion, or any other preference, persuasion or opinion one might have. And just because you happen to more or less agree with those who are profiling you today doesn’t mean tomorrow’s regime won’t make you for an easy target once they attain power.
Monetizing Your Closest-Held, Deepest Personal Details
In the meantime, the above mentioned stocks now comprise roughly one quarter of the entire NASDAQ market. FANG (Facebook, Amazon, Netflix and Google) + Apple possess a disproportionate $3 trillion in market cap, giving them extraordinary political clout, too.
Have a look –
The concentration of these stocks in the hands of pension, mutual and hedge funds also makes things worrisome, as Wall Street’s investment banks and brokerages have an obvious, deeply vested interest in seeing these companies profit, and their (the banks’) advocacy and lobbying power in Washington is not insignificant.
Take a look here –
Everyone has a piece of these outfits.
We’re not going to dwell on valuations at this time – they’ve been so overblown for so long (Amazon, for example, trading at 190x forward earnings and Netflix at 116x) that no one is paying attention anymore.
What we are focused on is earnings. Despite running into tax and trust issues at home and overseas, both Google and Facebook are expected to increase their overall ad revenue this year, even though they’ll lose market share to competitors.
And that’s what it takes to push a stock higher.
Facebook may face increasing scrutiny regarding how it operates, how it gathers and sells its information, but it will continue to be a market leader – despite the beating it’s now taking.
Have a look –
As the bell rings to open the week, Facebook shares are down almost 6% (in red on chart)!
But we’re not so worried.
First off, the next line of support appears at roughly $165, the point at which both the rising 274 day moving average and the last retracement bottom intersect (in blue), a line we also fully expect to hold.
We also see that RSI and MACD readings are flattening along their respective waterlines, a pattern that indicates stabilization.
More than that, we note that among the market’s leaders, Facebook was one of just a handful of issues that never reached overbought RSI territory while the market was topping in January – a fact that belies the company’s technical strength and the steadfastness of her support.
In contrast, the broad Technology Select Sector SPDR ETF (NYSE:XLK) twice pierced above that level over the last six months.
Here are the two mapped against eachother going back to last summer –
There’s really no reason for the two to be moving out of step. Facebook’s fortunes of late have been wholly media inspired. And while she may be worthy of the bitch-slap she’s getting in the press, it’s our very strong feeling that the gap (in blue) is about to close.
And we’re playing it as follows.
Wall Street Elite recommends you consider buying the XLK September 21st 72 PUT for $5.55 and selling the FB September 21st 150 PUT for $5.70. Total credit on the trade is $0.15.
NOTE WELL: the XLKs are already 5.5% in-the-money, while the FBs are over 15% out-of-the-money!- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]
With kind regards,
Hugh L. O’Haynew