There’s no two ways about it. Facebook, Inc. (NASDAQ:FB) has been one of the market’s top-performing stocks for the past few years. Facebook stock has outperformed Apple Inc. (NASDAQ:AAPL) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) since this time of the year in 2013, two fellow FANG stocks, with its 536% gain.
Only Netflix, Inc. (NASDAQ:NFLX) has fared better, with a whopping 985% rally for the five-year stretch.
As the old warning goes though, “past performance is guarantee of future results.” In fact, not only are we seeing Facebook’s rally decelerate, we’re seeing subtle clues that Facebook stock is teetering on the edge of a breakdown.
Even daring to bring up such a possibility for well-loved Facebook stock can (and likely will) incite the ire of its fans and followers, so let me be clear up front: This is not an indictment of the company. This is simply an acknowledgment that sometimes a stock is going to do its own thing, driven by perceptions of what may be happening in the company’s foreseeable future.
These swings don’t last forever, and they often become buying opportunities.
They’re still not a lot of fun though.
The graphic below tells the tale. While the Facebook stock price had been rolling higher with its FANG peers, something’s changed with it and only with it since late last year. That is, Facebook stock ran into trouble the other top internet-services names didn’t.
And it’s no small matter. Zooming into the daily chart of Facebook shares we can see the stock made a lower low in early February, and logged its first lower high in a long while just last week. Thanks to this week’s weakness, FB stock is back below all of its key moving average lines except for the key 200-day moving average line (green).
Yes, the 200-day line has already proven itself to be a technical floor, kick-starting a healthy reversal in early February. That bounce faded pretty quickly though, and Facebook shares have performed more bearishly than the broad market has this week.
Should this lull be allowed to gain traction and break below the floor at $169 (the 200-day moving average line will have already been breached by then), there’s little left to stave off a wave of profit-taking.
The needed perspective on Facebook’s budding pullback, though, is most evident on the weekly chart of FB stock. Take a look.
At first glance it just look choppy, but there are some often-overlooked clues packed in there though. It’s the height of the bars… tall bullish candlesticks (green) immediately followed by tall bearish candlesticks (red). We’ve seen three different sets of major reversals of one-week rally efforts since the beginning of the year.
It’s noteworthy because the battle between the bulls and the bears usually gets the most violent and erratic at major turning points for a stock. You don’t have to look that far back to realize the weekly bars for Facebook usually aren’t as tall as they’ve been of late. Never even mind the lack of follow-through.
The clincher: The doji/spinning top shape that was completed in the first week of February, where the open and close are both at or near the middle of a tall high/low range, has indeed become a pretty significant peak.
The fact that it’s framed by a tall bullish candle in front of it and a tall bearish candle after it only underscores that idea that it was a huge pivot.
Bottom Line for Facebook Stock
Plenty of people dismiss technical analysis as trading voodoo. That’s fine. I’d be the first to agree that chart analysis isn’t an exact science, and that non-chart-based factors are always relevant.
It would be naive to think, however, that a storied stock like Facebook is always priced in a way that makes rational sense of its underlying fundamentals. Facebook stokes emotions, and emotions can overvalue and undervalue stocks. It happens more than many would like to believe.
Of course, none of it really matters unless the floor at $169 fails. If and when that support line breaks though (as it looks like it will) expect fireworks for Facebook stock and not in a good way.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.