FANG stores a flashing danger signal for the entire stock market

The fear of increased government oversight has pushed the most popular stocks in this bull market towards a precarious graph, which could indicate greater pain for the group and the rest of the stock market.

A graphics analyst at Bank of America Merrill Lynch followed the performance of the four names "FANG" – Facebook, Amazon, Netflix and Alphabet, parent company of Google – compared to the broader S & P 500 since December 2017. A chart " head-to-tail, "which in the past has peaked, is again formed in these actions" FANG ", as was the case last year before the fall of the group and the rest of the market.

"In early October 2018, Facebook, Amazon, Netflix and Google (FANG) gave way to a short-term uptrend after forming a summit," said Stephen Suttmeier, Chief Technical Strategist at Bank of America-Merrill. Lynch, in a note on Wednesday. "It was a canary in the coal mine for the correction of the US stock market in late 2018".

"The previous weeks saw the emergence of a similar peak of the head and shoulders on FANG, supported by a similar break from the S & P 500, confirming a decline of the S & P 500", he added.

The FANG actions formed their latest head and shoulders after the group peaked in March, a high in April and a low in late May.

Source: Bank of America Merrill Lynch (The top consists of the FANG shares, the last of the FANG / S & P 500 shares)

Suttmeier believes that the return of this worrying trend suggests a potential setback for the market in general.

"A failure for the group to resume its resistance against the S & P 500 confirms the break-down, signaling the risk for the wider market," he wrote.

Although the S & P 500 index has risen nearly 20% since its recent low in late December, the index is down 4.4% over the last month. During this period, real estate and utilities have been the most successful groups – a sign that investors have fled to safe haven assets, amid growing concerns over a protracted trade war and the health of the country. American economy.

These same worries, which caused FANG shares to fall in the last months of 2018, have returned. In addition, the increased threat of increased government regulation has worsened investor anxiety, which has led to the "head and shoulders" scheme described by the Bank of America.

The Justice Department is reportedly preparing an anti-trust investigation on Google, while the Federal Trade Commission has reportedly been overseeing Amazon and Facebook, looking at how these companies could harm the digital competition.

Investors were mostly concerned about Facebook and Alphabet Monday, the sending of the two shares down more than 6%. Amazon slid by more than 4%, while Netflix – the relative outperformer – fell by nearly 2%. In total, they lost nearly $ 130 billion in market value and caused a 1.6% drop in Nasdaq Composite, pushing the techno-heavy index into correction territory, down more than 10% compared to its record high in late April.

"The entire technology component of today is the rhetoric of Senator Elizabeth Warren who is threatening to dismantle technology giants," KKM Financial CEO Jeff Kilburg told CNBC on Monday. "We thought it was just rhetoric, but now, with this news coming in, it's really punchy." Warren, a presidential candidate, said in March that she was interested in appointing regulators to cancel what she called "anticompetitive mergers," including Google's dealings with small businesses like Nest and Waze.

The technology giants rebounded on Tuesday, in part because of growing evidence that the Federal Reserve was open to easing monetary policy, but came under new pressure. Wednesday noon, each of the names "FANG" were trading in negative territory, even as the rest of the market was recovering. With decreases this week, Alphabet canceled its gains for the year as Facebook returned to the downside market, down 23.5 percent from its recent peak of July 2018.

Some analysts point out, however, that antitrust concerns and the potential impact on companies' quarterly results could be exaggerated.

"I do not think the business growth rates of these companies will change because of regulation," said Mark Mahaney, Senior Technical Analyst at RBC Capital Markets. "And I do not think you're going to see a material impact in terms of margins." There's already an increase in spending[ing] by all these companies in order to comply with the regulations. I do not think there is a new maker of needles beyond that. "

Mahaney added that he thought it was "very unlikely" that an antitrust investigation would result in "any kind of forced sale of assets, forced asset divestment" to giants of technology.

Fred Imbert of CNBC contributed to this report.